PowerSchool Holdings' (PWSC) CEO Hardeep Gulati on Q1 2022 Results - Earnings Call Transcript

May 07, 2022 6:10 PM ETPowerSchool Holdings, Inc. (PWSC)
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PowerSchool Holdings, Inc. (NYSE:PWSC) Q1 2022 Earnings Conference Call May 5, 2022 5:00 PM ET

Company Participants

Alan Taylor - IR

Hardeep Gulati - CEO

Eric Shander - CFO

Conference Call Participants

Brent Thill - Jefferies

Stephen Sheldon - William Blair

Joe Vruwink - Baird

Gabriela Borges - Goldman Sachs

Fred Havemeyer - Macquarie

Tanika Mehra - Bank of America


Good afternoon and evening, everyone, and welcome to PowerSchool's First Quarter 2022 Earnings Conference Call. As a reminder, today's call is being recorded, and your participation implies consent to such recording. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions].

With that, I would like to turn the call over to Alan Taylor, Investor Relations. Thank you. Please begin.

Alan Taylor

Thank you. Good evening, everyone, and thank you for joining us for PowerSchool's financial results conference call for the first quarter ended March 31, 2022. On the call today, we have PowerSchool's CEO, Hardeep Gulati; and CFO, Eric Shander.

Before we begin, allow me to provide a disclaimer regarding forward-looking statements. This call, including the Q&A portion of the call, may include forward-looking statements related to the expected future results for our company and are, therefore, forward-looking statements. Our actual results may differ materially from our projections due to a number of risks and uncertainties. The risks and uncertainties that forward-looking statements are subject to are described in our earnings release and other SEC filings.

Today's remarks will also include references to non-GAAP financial measures. Additional information, including definitions and reconciliations between non-GAAP financial information to the GAAP financial information, is provided in the corresponding press release, which is posted on PowerSchool's Investor Relations website at investors.powerschool.com. In addition, this conference call will be available for replay via webcast through the same website.

Hardeep will begin with a review of PowerSchool's first quarter highlights. Eric will then take you through a review of the financials before we proceed to Q&A.

With that, I'll now turn the call over to Hardeep.

Hardeep Gulati

Thanks, Alan, and good evening, everyone. Welcome, everyone, and thank you for joining our first quarter earnings call.

We had a strong start to the year, laying the foundation for continued growth and business momentum in 2022. We exceeded the top end of our guidance range for both revenue and adjusted EBITDA for the fourth consecutive quarter.

First quarter revenue totaled $149.6 million, up 27% year-over-year, and adjusted EBITDA was $42.6 million, representing a 28.5% margin. We continue to see strong demand for our products, which are mission-critical and core for districts to operate, empower educators, and achieve student success. We are excited about the momentum in our business and feel we are only scratching the surface of the long-term opportunity ahead of us.

This continued strong execution showcases the predictability and consistency of our business model and the resiliency of enterprise K-12 end market. This consistency has been the cornerstone of our success driven by: first, the power of our unified comprehensive platform, which enables continued demand and growth through cross-sell into existing customers; second, our track record and opportunity to continue expanding the depth and breadth of our differentiated platform; third, our position and continued growth as a platform leader in the K-12 SaaS market from not just in North America, but also with the net new logo wins in international; finally, and above all, the impact of our compliance-driven must-have platform has on K-12 education, which is one of the largest, most predictably funded and least cyclical markets.

I will share more details on these four key differentiated aspects of our platform as I highlight the results for this quarter.

First, our unified comprehensive platform enables strong cross-sell demand of our 18-plus products into our 14,000 customers, providing an integrated system of intelligence built on top of their system of record, of all district operations and compliance. Our integrated unified system of engagement for all key users and stakeholders, students, parents, teachers, and administrators makes us a unique and a potential strategic partner towards customers for their next critical needs and priorities. It is very exciting to see the demand and the conversations we are having with the state department of education, large and midsized districts on the broader digital transformation across all elements of transforming education.

For example, Unified Insights should provide predictive intelligence. Naviance should drive not just college, but career readiness and workforce planning. Unified Classroom to improve the whole child view and student engagement. And Unified Talent to address one of the biggest challenges education is facing today of teacher retention and shortage.

We are these strategic choice for our customers as no other single vendor can bring these pieces together and drive this transformation like us. With that, we are continuing to see balanced, consistent performance across all solution areas with over 300 cross-sell transactions in Q1.

Unified Insights continues to be our highest cross-sell growth area with adoption in many of our PowerSchool SIS customers like Akron and Lewiston, but also in our non-SIS customers like Marion County in Florida and Stanislaus County in California. Our classroom business is very healthy as customers see the value of our unified experience.

In Q1, we closed on the largest formative assessment deployment in North America with the top three school districts. I briefly mentioned our selection as a vendor of choice in the last earnings. And we continue to see strong growth in assessment to accelerate learning gains for students, which have been a challenge even prior to the pandemic for many districts and states. We are continuing to see growth in adoption of our Schoology LMS. Take example, Guam, who selected Schoology for all its public schools; West Ada, the largest school district in Idaho, selecting Schoology; Washington County, a 30,000-student school district in Utah, rounded out their entire classroom suite with a special programs in Q1.

Behavior is also becoming a key piece of our classroom solution. Concept School, a leading charter management organization, added Kickboard Behavior to their existing suite deployment. Our Unified Talent products continue to prove their value during what has been a difficult year for hiring and retaining educators.

Cleveland, for example, added our teacher evaluation solution to their implementation, bringing them up to eight PowerSchool products deployed across the district.

I'm thrilled to see the long-time customers continue to expand on our platform. It validates our ability to provide better student outcomes and transform K-12 education with Unified platform. No other vendor has this cross-sell opportunity given our market share. We have only touched a fraction of the billions of dollars of cross-sell opportunity within our base.

Second, we have proven our ability to innovate and create new avenues for growth through platform expansion. The integrations of our recent acquisitions are progressing well; further rounding our best-in-class SaaS platform that we believe is unmatched in breadth, scale, and presence with the North American K-12.

Last quarter, we added our communications and attendance products within Unified Home. Already, we have successfully sold the products to a regional department of education representing 90,000 students that was already using our SIS and special education products, helping them with territory-wide communication and attendance intervention.

We are also excited to announce that we are bringing an integrated curriculum and lesson planning solution into our classroom suite through the acquisition of Chalk, a small technology tuck-in acquisition that we closed this Monday. Having a best-in-class curriculum management further differentiates our classroom solution and furthers the value of deploying an enterprise LMS to support consistent high quality education in every classroom. The Chalk acquisition is consistent with our long-term strategy and push us one step further towards creating personalized learning pathways and expand the size of our total addressable market.

There is no shortage of opportunity to continue expanding our platform. There are hundreds of options and partners for technology tuck-ins to broaden our solution. With HSC around every solution area in our portfolio, we will continue to expand our platform through the highest investment in innovation in our industry in differentiated unified experiences and unified flows. Take example our recent innovation release of Naviance's CCLR, college, career, life readiness solutions with Schoology to effectively do course planning for students.

Third, we continue to grow our platform leadership position, not only in North America, but increasingly as a global leader in K-12, with over 45 million students reached in over 90 countries. I'm excited to announce some recent traction in United Arab Emirates, where we secured two net-new, full-suite platform deals, which includes our student information system or learning management and classroom products and our entire Unified Talent suite.

In private school groups, Al Ittihad and Liwa Education representing over 10,000 students. We recently brought on board an international head of sales based in Middle East, as we see additional pipeline demand in Middle East and more broadly, across the globe and will help us increase our focus on this massive international opportunity. We look forward to sharing more about our plans to tap into this growth vector in the future.

Finally, the growth and recognition we see is robust. But most exciting is the impact and the level of product adoption and usage we are seeing with our customers. In Q1 alone, our customer delivered over 110 million assessments to our classroom products, showing the value of classroom solution for all learning modalities.

We have been critical in helping districts solve one of their biggest issues with teacher retention and recruiting. With 2.8 million jobs posted, 1.7 million substitute positions filled, and 1.4 million professional development courses taken within our talent products in Q1 alone. These statistics underscore just how critical our solutions are to supporting our educators and administrators day-to-day and our stickiness and our ability to meet customer needs as they evolve.

These are just a few of the proof points that highlight the breadth and the scale of our platform, which we believe is unmatched by any other vendor in K-12 space. This will continue to grow. We had over 500 products go live in Q1 and currently have more than 1,700 active implementation projects. We are the market leader and the only provider of unified, comprehensive end-to-end software platform serving the K-12 ecosystem.

We are the strategic choice for our customers as no other single vendor can bring these pieces together and drive their broader digital transformation like us and reaffirms that we have the pipeline to grow within our existing customer base for years to come.

I'm very proud of the business we have built. This sustainable and profitable business model allows us to generate consistent results. But more importantly, it allows us to have a positive impact on education outcomes, altering equity in education and make investments to our vision of personalized learning.

We are pleased with our first quarter results and have a healthy pipeline for Q2 and beyond. Looking forward, we are very confident in our ability to deliver consistently strong results both in 2022 and beyond.

I will now hand it over to Eric to discuss our first quarter financial results in more detail and provide guidance for our Q2 and rest of the year. Eric?

Eric Shander

Thank you, Hardeep, and good evening, everyone.

We had a strong start to the year, reflecting the business momentum won, which continues to play out in 2022. Top-line performance in the first quarter was ahead of expectations driven by cross-sell and balanced growth across the product portfolio as districts continue to recognize the value of a multiproduct unified suite.

Before diving into the quarterly results, I would like to highlight three key drivers in our business that give us confidence in our long-term growth opportunities. First is the stability and predictability of a recurring revenue model and the durability of the K-12 end market. 87% of Q1 revenue was recurring in nature, creating a strong and predictable revenue stream into the future. Importantly, we believe the K-12 end market is well protected in the event of interest rate increases, inflation or economic slowdown supported by the mission critical nature of our solutions.

Second, is our proven cross-sell strategy driven by the value we create for our customers. Our products provide a meaningful ROI for our customers and lead to improved student outcomes. As districts purchase more and more solutions, it creates a flywheel effect in which products benefit from each other, compounding the value for customers and increasing the stickiness of the suite.

Third, is our compelling profitability profile, which allows us to invest in growth initiatives and strategic M&A opportunities. We have maintained strong margins while investing significantly in our public company infrastructure, organic growth initiatives, and tuck-in acquisitions.

Now turning to the quarterly results. Total company revenue in the first quarter was $149.6 million, an increase of 27% year-over-year and $1.6 million better than the top end of our guidance. The beat was driven by an acceleration of services revenue.

Subscription and support revenue totaled $129.8 million, up 26% year-over-year, driven by balanced growth across our product portfolio and strong customer retention.

Services revenue was $16.1 million, up 24% year-over-year, driven by increased product deployments and strong demand for our on-site services and PowerSchool University, our on-site training event.

For comparative purposes, Q1 of last year included one month of results from the Hobsons acquisition, which closed on March 3, 2021.

We ended the quarter with an annual recurring revenue balance of $556.7 million, and net revenue retention of $106.7 million, up 30 basis points from Q4, highlighting the continued success of our cross-sell strategy and the stickiness of our products.

Gross profit for the first quarter was $81.6 million, up 23% year-over-year and representing a 54.6% margin, while non-GAAP adjusted gross profit was $98.9 million, up 26% year-over-year, representing a 66.1% margin.

We maintained strong margins, benefiting from continued leveraging of our India Center of Excellence, which helped partially offset higher post-COVID corporate travel and in-person customer event expenses as we continue to invest in the areas driving our top-line growth.

Now turning to operating expenses. R&D in the first quarter totaled $26.6 million or 17.8% of total revenue compared with 15.7% a year earlier, reflecting our ability to maintain operational scale while continuing to invest in areas of innovation and our information security infrastructure. Excluding stock-based compensation, R&D expense as a percentage of total revenue, was relatively flat on year-over-year basis.

SG&A expense in the first quarter was $40.1 million or 26.8% of total revenue versus 21.4% from the year earlier, primarily driven by an increase in public company-related costs, higher post-IPO stock-based compensation expense and headcount to accelerate our go-to-market strategy.

This week, we acquired Chalk, our latest tuck-in acquisition, which complements our suite by adding a leading K-12 curriculum in lesson planning solution. For modeling purposes, Chalk has minimal revenue and costs associated with it for 2022.

Adjusted EBITDA in the first quarter totaled $42.6 million, or 28.5% margin, beating the top end of our guidance range. We remain focused on maintaining a healthy margin profile while continuing to invest in growth opportunities, including innovation focused on platform expansion and strategic M&A.

Now, turning to the balance sheet, liquidity and leverage. We ended the first quarter with $23.6 million in cash and equivalents, driven by strong cash collections and a $30 million draw on our revolving credit facility, offset by a negative $94.4 million change in working capital. Our working capital requirements peaked in the first half of the year and then become a major source of cash in Q3 and Q4. As a reminder, we generated $103.2 million in free cash flow in 2021 and we expect that number to grow this year.

We ended the quarter with a net leverage ratio of 4.5x, which ticked up from 4.1x at year-end 2021 due to the $30 million revolver draw in Q1 and our lower cash balance compared with year-end. Because of the cyclical nature of our cash flows, we expect our net leverage ratio to peak in Q2 before normalizing in Q3 and Q4.

This seasonality is common in businesses serving the K-12 ecosystem, as we align annual renewals to their budgeting cycle resulting in a majority of annual payments coming in Q3 and Q4. We continue to be ahead of our original de-levering plan, which is tremendous progress considering we have closed three acquisitions since our IPO.

In the current rising interest rate environment, our first lean term loan has exposure to euro-dollar based interest rates, specifically short-term LIBOR. A 25 basis point increase in the market interest rates would result in an increase in annual interest expense of less than $2 million.

Given the current macroeconomic environment, I'd like to discuss the durability of our business model in more depth, especially with the Fed signaling it will tighten monetary policy more aggressively to combat inflation. We believe our business is relatively well insulated against an economic downturn, given the noncyclical nature of our K-12 end-market and the mission criticality of our solution.

In 2002 to 2019, inflation-adjusted K-12 revenues grew by 24% nationally with all but states increasing revenues and 23 states increasing revenues by more than 20%. Moreover, the federal government has shown a willingness to provide financial relief to schools such as extra stimulus funds, offsetting any negative impacts on state and local budgets. And perhaps most importantly, our mission-critical solutions such as the student information system had become foundational and indispensable to public school operations.

Now, turning to our second quarter and full-year 2022 financial outlook and guidance. In the second quarter, we expect to deliver total revenue of $154 million to $156 million and adjusted EBITDA of $43 million to $45 million, representing a 28.4% margin at the midpoint. Please note that when we announced fourth quarter and full-year 2021 results on March 3, we had good visibility into first quarter revenue trends. The outperformance in Q1 was driven by services revenue, while subscriptions and support revenue was in line with our expectations.

For the full-year 2022, we are raising the top and bottom end guidance ranges for revenue and adjusted EBITDA, reflecting the continued momentum we see in the business. We now expect total revenue in the range of $623 million to $627 million, with the midpoint coming in at $625 million, representing an 11.9% year-over-year growth rate and adjusted EBITDA of $182 million to $186 million, representing a 29.4% adjusted EBITDA margin at the midpoint. This guidance includes additional costs from our recent tuck-in acquisitions of Chalk, Kinvolved and Kickboard, which are not expected to materially contribute to revenue or profitability in 2022.

For modeling purposes, we expect capital expenditures, excluding capitalized software of approximately $7 million and share-based compensation expense of approximately $60 million to $65 million for the full-year. Fully diluted shares for the year are expected to be in the range of 200 million to 205 million shares.

Overall, we delivered a strong first quarter and start to 2022. Demand for our solutions remains healthy, and our unified platform approach and market-leading position provides significant cross-sell opportunities. The ROI and value we provide to school districts in supporting mission-critical operations and improving student outcomes remains a key differentiator and competitive advantage.

With that, we are now happy to open the call for questions. Operator, will you please open up the line for Q&A.

Question-and-Answer Session


Thank you. [Operator Instructions].

And our first question is from the line of Brent Thill with Jefferies. Please go ahead.

Brent Thill

Thanks. Hardeep, I'm curious if you could comment as it relates to the international opportunity and how you see that unveiling over the next three years. Just a quick follow-up on the interest rate component. I think everyone's a little concerned about what's going on in the macro side. If you could just spend a little more time just drilling in, what is giving you the confidence in the resiliency of the core business in a tightened environment on the macro side? Thank you.

Hardeep Gulati

Yes. Thanks Brent. And I appreciate the question. So when you look at the international, let me start with first highlighting that there is no other international player who has got the depth, breadth, the scale we have with our solution. So we continuously get a lot of inbound opportunities across the globe when either whether it's a private school or even local schools, who want to kind of transform their education. We are very interested in the PowerSchool suite because we have the breadth and depth and proof points pretty much globally in every country.

One of the benefits, as I mentioned, international, Middle East, for example, and take example of UAE we've got a lot of proof points, almost already 100,000-plus students in multiple private schools and international schools there. So we have to leave our recognition help us even -- secure even more of these two wins of Al Ittihad and Liwa. What's exciting about them is, again, the value is not just in our student information system, they also value our classroom product or Schoology, our entire assessment, our -- as well as our talent products, which are critical. So we do see the traction we are seeing and the demand we're seeing, it is going to translate much broader.

As we mentioned in the Road Show, this is still pretty early innings for us in international. So one of the things we are putting an emphasis with bringing in a Head of International Sales, similarly of more investment in our partner network and potentially even acquisitions to look at a more aggressive as well as more accelerated approach to international. So over the next two, three years, you will see that, and we are happy to kind of share those more detailed plans in the next few quarters.

Now, to your other question, Brent, about the market. Well, one of the things I highlighted in my last earnings report as well, when you look at the K-12, and Eric just mentioned this in his prepared remarks, the K-12 funding is largely protected from the inflationary as well as recessionary pressures. So when you look at the trend over the last 20 years, even during great recession, even during any inflationary periods, the K-12 investment is largely robust. And you also are coming of a moment where there is additional investing through ESSER money that is providing even more cushion to the school districts to kind of ride any disruptions even if they see that through their state budgets and all.

So we see a very healthy, stable funding environment for K-12. And that's what's giving more strength into our projections, into our results as you see as well as into our guidance. We are definitely seeing a very exciting opportunities around the whole broader digital transformation, especially coming out of the COVID. The districts are even further waking up and looking at those transformations, whether it's on the data side or operation side or the classroom side or on the talent side, we are really benefiting from that all broader dialogue. Hope that helps.


And our next question is from the line of Matt Hedberg with RBC Capital Markets. Please go ahead with your question.

Unidentified Analyst

Hey. This is Anushka [ph] for Matt Hedberg. Thanks for taking my question. So you're calling for EBITDA margin improvement year-over-year in an environment where others are guiding their margins down. Could you talk about the levers there? And what gives you the confidence to continue improving the margin, particularly in the inflationary environment we are in?

Eric Shander

Yes, sure, this is Eric. So great question. We -- first off, as you look at our margin profile, I mean, we're extremely proud of not only growing top-line, but also continuing to do that in an environment where we are expanding our margins. As we look at the back half of the year, we've got a lot of operational leverage within the model. We've got a good clarity in terms of our operational expenses. We've got over 1,000 folks in our India Center of Excellence, which has continued to be a really highlight for us.

And we -- as I said before, we've got the opportunity to continue to grow the margins. But at the same time, too, we want to spend some of that investment into growing the areas that are going to help the top-line as well. So we've got good visibility into the expenses we have in the second half. And we are very, very bullish on not just the top-line, but then certainly, as we've showed in our guide, we increased 10 bps on the top end of our adjusted EBITDA. So I would just say, going back to the predictability of our cost model, how we're servicing our customers, the investments that we've made we're really seeing the value there. And as we continued over the last few years to really scale a lot of our operations, we're seeing that play through as well. So extremely, extremely strong margin profile, and we're going to continue to drive the necessary items there. But again, we just wanted to really signal the strength and bullishness we have around our overall margin profile as we see the second half playing out.


And our next question comes from the line of Stephen Sheldon with William Blair. Please go ahead.

Stephen Sheldon

Hi, Hardeep and Eric. Thanks for taking my question. First, just kind of curious what trends you've seen in bookings and RFP activity throughout the first quarter? And I guess since April in the second quarter. You're now entering the heaviest bookings quarter. And so have you seen any notable upticks in activity? And just generally curious how conversations are going there, especially with the increased stimulus funding maybe starting to flow through a little bit more.

Hardeep Gulati

Sure, Stephen. Thanks again for the question. You're absolutely right. We're definitely seeing an uptick in the activity. And as you know, Q2 is seasonally one of the most important quarters as a lot of districts prepare themselves for the next back-to-school and do those transformation projects. We're already seeing that in the Q1, which is shown by the results, and we are definitely sitting on a pretty exciting pipeline for not just Q2, but even rest of the year as well.

Well, especially what I'd call out is that some of the pipeline, as I mentioned a little bit in my prepared remarks, like take example, analytics, it's definitely an area where we're seeing tremendous interest and increase, not just at the district level from small and large, but even at the state level, there understanding of how they can use the longitudinal view about the student, the whole child view so they can have the right support and policies.

As you mentioned, ESSER money, in fact, a lot of that is still -- lots of majority still not spent is one of the easy areas for them to really use that to leverage that to further fund and look at not just how the kids and -- interventions and different support have been provided post-COVID, but even longer-term the view of that as well.

The second area I mentioned briefly is that the kind of conversation we are having is not just on the core operation, but even throughout the full longitudinal view into K-12, the long-term workforce. So now we have a connection with that of a classroom connections with Schoology, all these are becoming very important and relevant for our customers.

So we're seeing a pretty healthy pipeline across the insights and classrooms as well as our talent products. But we also -- actually what's exciting to see now is that coming out of the post-pandemic, districts are actually looking at transformation of their back office and operations even more aggressively. So we are even seeing state level as well as regional interest around SIS, which is also speaks to the broader exciting time, especially in K-12 as to how much transformation we can help drive for these districts.

Stephen Sheldon

Got it. That's great to hear. And I guess with that background, how are you thinking about the trend in NRR this year. It ticked up once again this quarter. I think you talked about at least one percentage point improvement for the year last quarter. Given what you're seeing now, how confident are you in that? And do you think there could be any potential upside to that number?

Eric Shander

Yes, Stephen, great question. We executed as we said we were going to -- we saw a 30 bps increase from Q4 into the first quarter. As I previously mentioned, the way that you're going to see the NRR continue to trend, you're going to see these types of movements sequentially quarter-to-quarter to quarter. I did say last quarter; we saw at least a point of improvement.

Certainly, based off Q1 performance and kind of where we see Q2 shaping up in the rest of the year, even more confident than that. And do we see some upside to the one percentage point that we had called at this point, it's still early, but I would say that we're very optimistic about that, for sure.


And our next question is from the line of Joe Vruwink from Baird. Please go ahead.

Joe Vruwink

Great. Hi everyone. I wanted to start with the cross-sell activity in the quarter, the 300 transactions you spoke about earlier. In some of your stronger -- seasonally strong quarters of last year, you were doing 300 or 400 cross-sell transactions. So is the right way to think about a 1Q number being at 300? Can we take that as an unusually or seasonally strong kind of cross-sell period? And is there anything more in terms of maybe where incremental demand or what's behind that strength?

Hardeep Gulati

Thanks. Thanks, Joe. So let me kind of -- when we go looking at the number of transactions, we are really telling about the velocity. And as you said, we do, do a pretty -- the velocity within each quarter seems to be very exciting. But when you look at some translating to result, sometimes that depends on the size of the customer. So you might have a large deal and you might have a lot of small deals.

So I would not translate that directly into that, but I think you could use that as a good parameter of the velocity of the number of transactions and the customers we're talking about. So absolutely, you can do that. But I would not directly multiply that into kind of like a -- from a growth because the size of the customer does matter.

Joe Vruwink

Okay. Okay. That's helpful. And then I know you don't kind of talk about your product suites and levels of growth on a quarter-by-quarter basis. But just going off the disclosures in your Annual Report, it seems like organically it was still Unified Classroom and Insights that was the strongest growth area of PowerSchool overall. Is that kind of the right expectation to have going forward? You spend a lot of time on analytics and the ability to offer a closer, almost a personalized tutoring experience. Should that be a conduit for faster growth there relative to SIS talent administration in some of the other areas?

Hardeep Gulati

Yes, Joe, you got very good point. So I think as you factored in right, definitely, when you look at the insights and the classroom products, they are definitely very high growth areas. No surprise given -- as we've seen in the pandemic, both from transforming the classroom so you can manage the different hybrid and different modalities, but then also insights to help them understand where the learning gaps are and actually driving further improvements on it. And we were seeing some of these high growths by the way in the classroom and insight even prior to pandemic. So they're just building even further from the pandemic.

But it's equally important that when you look at the course, the SIS and talent products, they are also actually growing very healthy because they are mission-critical. One of the beauty of our product is that these are things which are required to -- for any organization, for any K-12 organization to actually get them funded, to remain in compliance and then be able to continue running their operations. So these are very high sticky mission-critical applications. And absolutely, we are also seeing strong upsell as well as new logo growth on those areas as well. So we do expect those areas to be also continuing to do well. But definitely, the insight and classroom, as you will say, would be the highest growth areas.


[Operator Instructions].

And our next question is from the line of Gabriela Borges with Goldman Sachs. Please go ahead.

Gabriela Borges

Hi, good afternoon. Thanks for taking my question and I appreciate all of the additional commentary on the resiliency of the end market. Hardeep, I'd love to ask you about what you're seeing in the LMS market today. And more specifically, could you walk us through some of the catalysts that are happening in the market that are transitioning or causing schools to transition from unpaid to paid?

Hardeep Gulati

So -- Gabriela, it's a good pleasure talking to you. I think as you said, one of the beauty of our markets is that it's a very stable end market, it's kind of where everything else going into the condition -- marketing condition is kind of very resilient and a proof from that. Our solutions are very mission-critical. LMS is definitely one of our key areas of growth along with the benefit of the broader classroom. What we do see it to -- we do see adoption of lot of LMS in our PowerSchool installed base. Customers who are leveraging our student information system, or they are leveraging our Performance Matters assessment solution, they are definitely looking at adopting LMS.

We saw a very high growth over the 2020, even during the height of the pandemic, where we almost added four to five million students during that 18 months. But typically, in any year, we will see about one million to two million students additional adopt LMS. And we are still seeing that even post-pandemic to be very healthy. I mentioned Guam, I mentioned West Ada in my prepared remarks. We're similarly seeing a lot of other customers in SIS as well as our assessment customers, who are kind of using that as an opportunity to kind of really have an integrated classroom and a back-office system.

I think you probably would appreciate that -- think about a student not having to go check a homework and an assignment in one place and having to check their grades and their attendance and their behavior and their report in other place. Bringing it all together, we have a kind of only solution, which offer an SIS and LMS and assessment integrated, and that is a big differentiation where we continue to see it. Half of the market, to your point, is still unpaid. So we -- which are using very lightweight collaboration systems, I would call them. I wouldn't want to call them an LMS. And we do see continuing traction of the market, where one million to two million students additionally we continue to see capturing that into the foreseeable future.

Gabriela Borges

That's very helpful. Thank you. And as a follow-up, if I may. I know you've talked in the past about the analytics piece of the portfolio growing sustainably in the 30% kind of range. Either for yourself or for Eric, remind us how to think about how deal sizes change on a pricing basis as more of your customers add analytics?

Hardeep Gulati

What I can tell you, Gabriela, and Eric, feel free to jump on this, when you look at -- Gabriela, when you look at our suite, right, if somebody buys all of our 19-plus modules, right, you're talking about somewhere between even $70 to $100 per student. A customer who might have eight to nine products, you're looking at $30 to $50 depending upon the size of the customers; you're going to see that.

So analytics, think about analytics as another module, yes, right, which allows us to continue to capture. One of the beauty of the analytic suite is what I would say is that while one of the key things that we continue to see the demand is on the student essential analytics, which is understanding student, the whole child view, how the student is doing from assessment engagement. We do have multiple analytic solutions, like the entire finance and HR analytics. We have enrollment analytics. We also have analytics of understanding matrix and predictive model. And we are adding -- introducing one of the new areas where we are launching education and professional learning and effectiveness analytics. So these will present us additional dollars per student we can capture from the school district.

So I do view analytics by itself is going to be a $10 to $20 per student commitment from the districts because it would provide them a huge value because it helps them optimize the rest of the $10,000 to $14,000 pursuant spending what there is by driving better data intelligence. So hope that helps you understand kind of from a pricing, how would you think about the analytics.


And our next question is from the line of Fred Havemeyer with Macquarie. Please go ahead.

Fred Havemeyer

Hi, thank you. I was thinking earlier today about the past couple of years and how many of the students that have been in school systems haven't really had a normal school year now since March 2020 when many were beginning to take what they thought initially it was going to be like two-week break from school. It got me thinking in the past couple of years you had -- especially during the COVID pandemic, substantial LMS adoption as schools were graveling with the problem of distance learning. And now as your portfolio was kind of normalizing or demand is normalizing across your portfolio, do you see any opportunities here for schools to begin purchasing, say, more assessments or anything that would drive personalized learning opportunities that could really help students get back on track and really address those issues of learning loss that have been accruing as students just haven't had proper school years?

Eric Shander

Yes, absolutely. You're touching on a key point. In fact, one of the case studies I mentioned in my prepared remarks, this is a -- call it, top three school district, right, which has been using our learning management for 600,000 students, almost even prior to pandemic. They had been having almost 500,000 students who are using it daily in and out on our system managing assignments, managing homework, the communication.

And you're absolutely right, one of the opportunities they saw coming out of the pandemic that how their usage was only increased post-pandemic. They wanted to use to make that as a foundation so they can do more personalized learning as well as a better support for our kids. So they have adopted our Performance Matters assessment, integrated into the Schoology because that allows them to now provide a better understanding of that across all students.

We have also given example of Miami-Dade in the previous calls, where they also started with our assessment and adopted LMS last year. So we see a lot of those -- I'm mentioning last year, but we see this pretty common in hundreds of other school districts who have actually taken the benefit of having an integrated learning and an assessment environment to be one of the game-changers for them, not just for dealing with some of the pandemic and the learning loss even before that as to how this really helps them better provide an engagement to the students so they can support every child better. So most of this is -- this thing is -- trends are actually -- have been prior to pandemic, and they have only got accelerated post-pandemic.

Fred Havemeyer

Thank you. And then I know that we touched on a couple of different aspects of the macro environment, but I really wanted to also touch on or rather ask about just generally your pricing philosophy your pricing leverage in this market considering the inflationary backdrop. So could you just again walk us through how PowerSchool thinks about pricing, and generally, how it approaches multiyear contracts with low pricing escalators? Thank you.

Eric Shander

Yes. So Fred, it's Eric. So -- and I'll take this. As we look at it, first, and we've said this a few times, we really look at driving the overall value to our customers and the impact and really getting our customers adopting more and more of our modules, which then really becomes the overall value of the platform to the customer. So our contracts do allow for price increases. Those do -- we negotiate those at the beginning of the contract terms. I would tell you they're in the low, low percentage range, think of 3% to 4%. We have not done a substantial amount of increasing at this point in time to those price increases.

Now, there are some renewal opportunities where we have -- in certain situations not -- across the board that we have provided some increases in those prices, very, very small in nature. But we continue to, and this is back to the -- one of the earlier questions I addressed is we've got a fair amount of operational leverage within our business model, and we're really driving those actions to try and keep the pricing as consistent as possible to our customers. And we feel like, again, that the value is really driving more modules, adoption into the customer, seeing the value of the platform, and less so driving revenue through increasing of our price escalators.


And our next question is from the line of Diane [sic] Peterson from Raymond James. Please go ahead.

Unidentified Analyst

Hi, this is [indiscernible] on for Brian. This is a follow-up from earlier questions, but now that the school year is wrapping up, what early insights are you having on what customer, like feedback are you probably using to help them return back to normal post-pandemic as well as where they are interested in for possible renewal to upgrade next year. Thanks.

Eric Shander

Sure. Let me make sure, I get them. One of the things, I think, as I mentioned, the beauty of our business is that what we sell is a must-have, right? These are solutions like our student information system, our special education, our talent recruitment or substitute teacher management or our teacher professional learning or even our assessments, which is tied to the state accountability standards or learning management so they can actually manage the compliance and also make sure that every child is getting an equity in the education. These are critical to having these school districts getting funded, remain in compliance and drive better attendance and education outcome, which actually helps them drive more funding as well.

So the ROI of our solution and the stickiness of that is not based on like, I need the solution today or not. These solutions, they have been using for many years and they get the benefit of it in any situation. It doesn't matter whether the student is fully remote or hybrid or in-person. Each of these solutions have the value of actually in all those scenarios of engagement and better student outcomes.

So our renewal rates actually continue to be very healthy. In fact, when you look at our core products, the renewals rates are -- even our gross retentions are in the high 90s. So we really build on that. The fact that these are sticky solutions, pandemic-only, it has been an accelerator in helping them look at additional transformations to be faster, but it's definitely not a sign where the renewals or anything is really sidetracked because even all these solutions are applicable to them on an ongoing basis, and they don't really move up and down based on the situation in one quarter or certain students, it actually is deployed across the entire district.


And our next question is from the line of Koji Ikeda from Bank of America. Please go ahead.

Tanika Mehra

Hi, this is Tanika Mehra on for Koji. Thanks for taking our question and it's great to see your growth internationally. You said that you signed up two private schools. Should that carry higher pricing versus public international schools? Also, would you say private is the near-term growth vector internationally more so than public? And overall, is there anything to highlight with respect to the difference in demand or typical land of international customers versus domestic customers? Thank you.

Eric Shander

Thank you. And absolutely fair question. So we don't differentiate our pricing based on a private chart or public. Our pricing is actually more based on the size of the district. As you can imagine, if you're a big district deployment or you're state deployment, you have a pricing advantage because of the volume. And if you're a small private school, then you have on the higher side of it. So that pricing is not dependent on our pricing is fairly robust across not just in North America, but international.

I think to your follow-up question about -- in areas of where do we see international to be any different behavior than U.S. I think one of the key emphasis I was trying to make with these two deals was the fact that how much that the -- our entire suite is relevant even internationally. So the demand we are seeing is not just for a Schoology or our student information system, we are even seeing it for talent management internationally. We are seeing it for better assessment, for better behavior management, for communication, enrollment. So all these solutions are very relevant even internationally, whether you're a private school or whether you are even a public school international.

When you look at the HolonIQ Report, it talked about education being a $10 trillion industry with K-12 being almost a $6 trillion-plus funding globally. This is a very big, huge market. And as I mentioned, we are in a very unique position that there is no other international player, which has these best-in-class full-suite solution for K-12. And that's the reason we are seeing a lot of interest inbound from thought leaders across international. And we already have proof points, like country of Uruguay which has almost 600,000 students on our Schoology or in Philippines, where we have more than 300,000, 400,000 students. We have SIS deployment across in 90 countries. So we definitely have a lot of proof points.

As I mentioned, we -- they largely have been opportunistic and inbound. We are definitely now turning and accelerating our international strategy with investments, which will help us start capturing these different markets, especially the emerging markets where we have a big focus on.


And we have no further questions on the phone line at this time. I will now turn the conference back to Hardeep Gulati for closing remarks.

Hardeep Gulati

Well, thank you again for your continued support in PowerSchool and our mission. We have been very pleased with our results from the first quarter. And as you can see from our guidance, we are very confident and will continue to have consistent success in 2022 and beyond.

As I mentioned, we are in a very exciting timeframe, but also in a very stable market, which allows us to continue to leverage our market conditions, but also the differentiation we have of our platform to continue to grow and also distance us from our competitors. As we continue to invest, not just in having the unified platform, but even the personalized learning, which is a game-changer, and we are proud to serve the 14,000 education customers today and continue that growth base as well.

So thanks, again, and I appreciate, and have a wonderful evening.


That does conclude your conference call for today. We thank you for your participation and ask that you please disconnect your lines. Goodbye.

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