UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~March~~June 3130, 2024


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission ~~file~~File ~~number~~Number 001-40684

PowerSchool Holdings, Inc.

(Exact name of registrant as specified in its charter)


Delaware			85-4166024
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)
150 Parkshore Drive Folsom, CA (Address of Principal Executive Offices)			95630 (Zip Code)

(877) 873-1550

(Registrant’s telephone number, including area code)

Not applicable

(Former name or former address, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class	Trading Symbol	Name of each exchange on which registered
Class A Common Stock, par value $0.0001 per share	PWSC	The New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

The registrant had ~~203~~204,~~652~~180,~~282~~143 shares of common stock outstanding as of ~~April~~July 3031, 2024.

TABLE OF CONTENTS

Part I - Financial Information		4
	Item 1. Condensed Consolidated Financial Statements (Unaudited)	4
	Condensed consolidated balance sheets as of March 31, 2024 and December 31, 2023	4
	Condensed consolidated balance sheets as of June 30, 2024 and December 31, 2023	4
	Condensed consolidated statements of operations and comprehensive loss for the three months ended March 31, 2024 and 2023	6
	Condensed consolidated statements of operations and comprehensive loss for the three and six months ended June 30, 2024 and 2023	6
	Condensed consolidated statements of stockholders’ equity for the three months ended March 31, 2024 and 2023	7
	Condensed consolidated statements of stockholders’ equity for the three and six months ended June 30, 2024 and 2023	8
	Condensed consolidated statements of cash flows for the three months ended March 31, 2024 and 2023	8
	Condensed consolidated statements of cash flows for the six months ended June 30, 2024 and 2023	10
	Notes to unaudited condensed consolidated financial statements	1012
	Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	2630
	Item 3. Quantitative and Qualitative Disclosures About Market Risk	4347
	Item 4. Controls and Procedures	4347
Part II - Other Information		4448
	Item 1. Legal Proceedings	4448
	Item 1A. Risk Factors	4448
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	4450
	Item 3. Defaults Upon Senior Securities	4450
	Item 4. Mine Safety Disclosures	4450
	Item 5. Other Information	4450
	Item 6. Exhibits	4551
Signatures		4652

Part I - Financial Information

Item 1. - Condensed Consolidated Financial Statements (Unaudited)

POWERSCHOOL HOLDINGS, INC.


CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except for number of shares and par value)

	As of March 31, 2024		As of December 31, 2023
	As of June 30, 2024		As of December 31, 2023
Assets
Current Assets:
Cash and cash equivalents	$	1720,~~425~~678	$	39,054
Accounts receivable—net of allowance of $6,543 and $7,930 respectively	61,121		76,618
Accounts receivable—net of allowance of $7,143 and $7,930 respectively	89,393		76,618
Prepaid expenses and other current assets	5145,~~609~~797		40,449
Total current assets	~~130,~~155,868		156,121
Property and equipment - net	87,~~181~~773		5,003
Operating lease right-of-use assets	1512,~~900~~892		15,998
Capitalized product development costs - net	~~112~~113,~~810~~661		112,089
Goodwill	2,~~770~~768,~~971~~966		2,740,725
Intangible assets - net	~~692~~666,~~953~~591		710,635
Other assets	35,~~897~~491		36,311
Total assets	$	3,~~766~~761,~~867~~242	$	3,776,882
Liabilities and Stockholders’ Equity
Current Liabilities:
Accounts payable	$	1214,~~686~~200	$	13,629
Accrued expenses	~~110~~128,~~858~~094		116,271
Operating lease liabilities, current	3,~~837~~398		4,958
Deferred revenue, current	~~275~~206,~~461~~482		373,672
Revolving credit facility	~~125~~187,000		—
Current portion of long-term debt	8,379		8,379
Total current liabilities	~~536~~547,~~221~~553		516,909
Noncurrent Liabilities:
Other liabilities	1,~~902~~142		2,178
Operating lease liabilities—net of current	1312,~~461~~784		13,359
Deferred taxes	~~276~~268,~~629~~953		275,316
Tax Receivable Agreement liability	375,647		396,397
Deferred revenue—net of current	86,~~196~~875		6,111
Long-term debt, net	~~810~~809,~~497~~669		811,325
Total liabilities	2,022,~~553~~623		2,021,595
Commitments and contingencies (Note 12)

Stockholders' Equity:
Class A common stock, $0.0001 par value per share, 500,000,000 shares authorized, 165,726,673 and 164,796,626 shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively.	16		16
Class A common stock, $0.0001 par value per share, 500,000,000 shares authorized, 166,471,395 and 164,796,626 shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively.	16		16
Class B common stock, $0.0001 par value per share, 300,000,000 shares authorized, 37,654,059 and 37,654,059 shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively.	4		4
Class B common stock, $0.0001 par value per share, 300,000,000 shares authorized, 37,654,059 and 37,654,059 shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively.	4		4
Additional paid-in capital	1,~~532~~550,~~371~~637		1,520,288
Accumulated other comprehensive loss	(23,~~828~~132)		(2,094)
Accumulated deficit	(~~237~~257,~~945~~956)		(218,387)
Total stockholders' equity attributable to PowerSchool Holdings, Inc.	1,~~291~~289,~~618~~569		1,299,827
Non-controlling interest	~~452~~449,~~696~~050		455,460
Total stockholders' equity	1,~~744~~738,~~314~~619		1,755,287
Total liabilities and stockholders' equity	$	3,~~766~~761,~~867~~242	$	3,776,882

See notes to condensed consolidated financial statements.

POWERSCHOOL HOLDINGS, INC.


CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(in thousands except for per-share data)

	Three Months Ended March 31,
	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Revenue:
Subscriptions and support	$	~~166~~170,~~927~~129	$	~~141~~146,~~073~~503	$	337,056	$	287,576
Service	1619,~~686~~321		1620,~~233~~197		36,007		36,429
License and other	12,~~354~~142		27,~~148~~197		3,496		9,345
Total revenue	~~184~~191,~~967~~592		~~159~~173,~~454~~897		376,559		333,350
Cost of revenue:
Subscriptions and support	4647,~~327~~768		3836,~~194~~781		94,095		74,975
Service	1312,~~383~~210		1415,~~323~~123		25,593		29,446
License and other	1,~~071~~148		~~951~~1,017		2,219		1,968
Depreciation and amortization	1918,~~080~~705		16,~~021~~108		37,785		32,129
Total cost of revenue	79,~~861~~831		69,~~489~~029		159,692		138,518
Gross profit	~~105~~111,~~106~~761		89104,~~965~~868		216,867		194,832
Operating expenses:
Research and development	3130,~~651~~616		25,~~421~~862		62,267		51,283
Selling, general, and administrative	5271,~~432~~621		4953,~~558~~129		124,052		102,687
Acquisition costs	~~753~~276		—		1,029		—
Depreciation and amortization	17,~~349~~344		15,~~771~~764		34,693		31,535
Total operating expenses	~~102~~119,~~185~~857		9094,~~750~~755		222,041		185,505
Income (loss) from operations	2(8,~~921~~096)		~~(785)~~10,113		(5,174)		9,327
Interest expense—net	2023,~~996~~193		1416,~~029~~101		44,189		30,130
Other expenses (income)—net	(99853)		4431		(950)		74
Loss before income taxes	(1730,~~976~~436)		(146,~~858~~019)		(48,413)		(20,877)
Income tax expense (benefit)	(4,~~872~~732)		(451,724)		139		(1,769)
Net loss	(2225,~~848~~704)		(144,~~813~~295)		(48,552)		(19,108)
Less: Net loss attributable to non-controlling interest	(35,~~290~~693)		(21,~~960~~100)		(8,983)		(4,060)
Net loss attributable to PowerSchool Holdings, Inc.	(1920,~~558~~011)		(113,~~853~~195)		(39,569)		(15,048)
Net loss attributable to PowerSchool Holdings, Inc. Class A common stock:
Basic	$(20,011)	~~(19,558)~~	$(3,195)	~~(11,853)~~	(39,569)		(15,048)
Diluted	$(24,916)	~~(24,131)~~	$(4,080)	~~(11,853)~~	(49,047)		(15,048)
Net loss attributable to PowerSchool Holdings, Inc. per share of Class A common stock, basic and diluted	$	(0.12)	$	(0.0702)	$	(0.24)	$	(0.09)
Weighted average shares of Class A common stock:
Basic	~~165~~166,~~037~~040,~~089~~370		~~160~~163,~~506~~067,~~571~~859		165,538,730		161,794,290
Diluted	~~202~~203,~~691~~694,~~148~~429		~~160~~200,~~506~~721,~~571~~918		203,192,789		161,794,290
Other comprehensive income (loss), net of taxes:
Foreign currency translation	(734)		86
Change in unrealized loss on investments	—		3
Total other comprehensive income (loss)	(734)		89
Less: Other comprehensive income (loss) attributable to non-controlling interest	$	(136)	$	17
Comprehensive loss attributable to PowerSchool Holdings, Inc.	$	(20,156)	$	(11,781)

See notes to condensed consolidated financial statements

POWERSCHOOL HOLDINGS, INC.



Other comprehensive income (loss), net of taxes:
Foreign currency translation	(304)		21		(1,038)		108
Change in unrealized loss on investments	—		—		—		3
Total other comprehensive income (loss)	(304)		21		(1,038)		111
Less: Other comprehensive income (loss) attributable to non-controlling interest	$	(56)	$	4	$	(192)	$	21
Comprehensive loss attributable to PowerSchool Holdings, Inc.	$	(20,259)	$	(3,178)	$	(40,415)	$	(14,958)

~~CONDENSED~~See ~~CONSOLIDATED~~notes ~~STATEMENTS~~to OFconsolidated ~~STOCKHOLDERS’~~financial ~~EQUITY (in thousands)~~statements

	Class A common stock			Class B common stock			Additional paid-in capital		Accumulated other comprehensive income (loss)		Accumulated deficit		Non-controlling interest		Total
	Shares	Amount		Shares	Amount
Balance—December 31, 2023	164,796	$	16	37,654	$	4	$	1,520,288	$	(2,094)	$	(218,387)	$	455,460	$	1,755,287
Issuance of common stock upon vesting of Restricted Stock Awards	931	—		—	—		—		—		—		—		—
Share-based compensation	—	—		—	—		14,843		—		—		—		14,843
Net share settlement of equity awards	—	—		—	—		(65)		—		—		—		(65)
Other comprehensive income (loss)	—	—		—	—		—		(734)		—		—		(734)
Allocation of equity to non-controlling interests	—	—		—	—		(526)		—		—		526		—
Adjustments to deferred taxes and Tax Receivable Agreement liability	—	—		—	—		(2,169)		—		—		—		(2,169)
Net loss	—	—		—	—		—		—		(19,558)		(3,290)		(22,848)
Balance—March 31, 2024	165,727	$	16	37,654	$	4	$	1,532,371	$	(2,828)	$	(237,945)	$	452,696	$	1,744,314

	Class A common stock			Class B common stock			Additional paid-in capital		Accumulated other comprehensive loss		Accumulated deficit		Non-controlling interest		Total
	Shares	Amount		Shares	Amount
Balance—December 31, 2022	159,596	$	16	39,928	$	4	$	1,438,019	$	(2,122)	$	(187,250)	$	485,277	$	1,733,944
Issuance of common stock upon vesting of Restricted Stock Awards	1,000	—		—	—		—		—		—		—		—
Share-based compensation	—	—		—	—		15,280		—		—		—		15,280
Net share settlement of equity awards	—	—		—	—		(1,284)		—		—		—		(1,284)
Other comprehensive income (loss)	—	—		—	—		—		89		—		—		89
Allocation of equity to noncontrolling interests	—	—		—	—		(772)		—		—		772		—
Exchange of Class B common stock for Class A common stock related to secondary offering	2,274	—		(2,274)	—		27,642		—		—		(27,642)		—
Adjustments to deferred taxes and Tax Receivable Agreement liability related to secondary offering	—	—		—	—		(1,255)		—		—		—		(1,255)
Net loss	—	—		—	—		—		—		(11,853)		(2,960)		(14,813)
Balance—March 31, 2023	162,870	$	16	37,654	$	4	$	1,477,630	$	(2,033)	$	(199,103)	$	455,447	$	1,731,961

POWERSCHOOL HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF ~~CASH~~STOCKHOLDERS’ ~~FLOWS~~EQUITY (in thousands)

	Three Months EndedMarch 31,
	Class A common stock				Class B common stock				Additional paid-in capital		Accumulated other comprehensive loss		Accumulated deficit		Non-controlling interest		Total
	2024				2023
	Shares		Amount		Shares		Amount
Cash flows from operating activities:
Balance—December 31, 2023	164,796		$	16	37,654		$	4	$	1,520,288	$	(2,094)	$	(218,387)	$	455,460	$	1,755,287
Net loss	$	(22,848)			$	(14,813)
Issuance of common stock upon vesting of Restricted Stock Awards	931		—		—		—		—		—		—		—		—
Adjustments to reconcile net loss to net cash used in operating activities:
Net share settlement of equity awards	—		—		—		—		(65)		—		—		—		(65)
Depreciation and amortization	36,429				31,792
Share-based compensation	—		—		—		—		14,843		—		—		—		14,843
Share-based compensation	14,155				14,549
Other comprehensive income (loss)	—		—		—		—		—		(734)		—		—		(734)
Amortization of operating lease right-of-use assets	851				788
Allocation of equity to non-controlling interests	—		—		—		—		(526)		—		—		526		—
Change in fair value of contingent consideration	20				(450)
Adjustments to deferred taxes and Tax Receivable Agreement liability	—		—		—		—		(2,169)		—		—		—		(2,169)
Amortization of debt issuance costs	1,487				876
Net loss	—		—		—		—		—		—		(19,558)		(3,290)		(22,848)
(Benefit from) provision for allowance for doubtful accounts	(1,272)				369
Balance—March 31, 2024	165,727		$	16	37,654		$	4	$	1,532,371	$	(2,828)	$	(237,945)	$	452,696	$	1,744,314
Loss (gain) on lease modification	(37)				52
Issuance of common stock upon vesting of Restricted Stock Awards	744		—		—		—		—		—		—		—		—
Loss (gain) on sale/disposal of property and equipment	(816)				48
Net share settlement of equity awards	—		—		—		—		(52)		—		—		—		(52)
Changes in operating assets and liabilities — net of effects of acquisitions:
Share-based compensation	—		—		—		—		19,679		—		—		—		19,679
Accounts receivables	17,748				8,360
Other comprehensive loss	—		—		—		—		—		(304)		—		—		(304)
Prepaid expenses and other current assets	(9,922)				(7,135)
Allocation of equity to non-controlling interests	—		—		—		—		(2,047)		—		—		2,047		—
Other assets	191				(2,283)
Adjustments to deferred taxes and Tax Receivable Agreement liability	—		—		—		—		686		—		—		—		686
Accounts payable	(646)				250
Net loss	—		—		—		—		—		—		(20,011)		(5,693)		(25,704)
Accrued expenses	(25,371)				(16,512)
Balance—June 30, 2024	166,471		$	16	37,654		$	4	$	1,550,637	$	(3,132)	$	(257,956)	$	449,050	$	1,738,619
Other liabilities	(1,654)				(1,753)
Deferred taxes	4,533				(494)
Tax Receivable Agreement liability	323				16
Deferred revenue	(102,856)				(73,687)
Net cash used in operating activities	(89,685)				(60,027)
Cash flows from investing activities:
Purchases of property and equipment	(3,887)				(356)
Investment in capitalized product development costs	(8,956)				(9,676)
Acquisitions—net of cash acquired	(36,062)				—
Payment of acquisition-related deferred consideration	(5,800)				—
Net cash used in investing activities	(54,705)				(10,032)

	Three Months EndedMarch 31,
	Class A common stock				Class B common stock				Additional paid-in capital		Accumulated other comprehensive loss		Accumulated deficit		Non-controlling interest		Total
	2024				2023
	Shares		Amount		Shares		Amount
Cash flows from financing activities:
Balance—December 31, 2022	159,596		$	16	39,928		$	4	$	1,438,019	$	(2,122)	$	(187,250)	$	485,277	$	1,733,944
Taxes paid related to the net share settlement of equity awards	(65)				(1,284)
Issuance of common stock upon vesting of Restricted Stock Awards	1,000		—		—		—		—		—		—		—		—
Proceeds from Revolving Credit Agreement	140,000				—
Share-based compensation	—		—		—		—		15,280		—		—		—		15,280
Repayment of Revolving Credit Agreement	(15,000)				—
Net share settlement of equity awards	—		—		—		—		(1,284)		—		—		—		(1,284)
Repayment of First Lien Debt	(2,095)				(1,938)
Other comprehensive income (loss)	—		—		—		—		—		89		—		—		89
Payment of contingent consideration	(245)				—
Allocation of equity to noncontrolling interests	—		—		—		—		(772)		—		—		772		—
Net cash provided by (used in) financing activities	122,595				(3,222)
Exchange of Class B common stock for Class A common stock related to secondary offering	2,274		—		(2,274)		—		27,642		—		—		(27,642)		—
Effect of foreign exchange rate changes on cash	166				73
Adjustments to deferred taxes and Tax Receivable Agreement liability related to secondary offering	—		—		—		—		(1,255)		—		—		—		(1,255)
Net decrease in cash, cash equivalents, and restricted cash	(21,629)				(73,208)
Net loss	—		—		—		—		—		—		(11,853)		(2,960)		(14,813)
Cash, cash equivalents, and restricted cash—Beginning of period	39,554				137,981
Balance—March 31, 2023	162,870		$	16	37,654		$	4	$	1,477,630	$	(2,033)	$	(199,103)	$	455,447	$	1,731,961
Cash, cash equivalents, and restricted cash—End of period	$	17,925			$	64,773
Issuance of common stock upon vesting of Restricted Stock Awards	586		—		—		—		—		—		—		—		—
Supplemental disclosures of cash flow information:
Share-based compensation	—		—		—		—		18,261		—		—		—		18,261
Cash paid for interest	$	19,129			$	13,695
Net share settlement of equity awards	—		—		—		—		(141)		—		—		—		(141)
Cash paid for income taxes	890				390
Adjustments to deferred taxes	—		—		—		—		223		—		—		—		223
Supplemental disclosures of noncash investing and financing activities:
Other comprehensive income (loss)	—		—		—		—		—		21		—		—		21
Property and equipment additions in accounts payable and accrued liabilities	$	507			$	317
Allocation of equity to noncontrolling interests	—		—		—		—		(2,387)		—		—		2,387		—
Capitalized interest related to investment in capitalized product development costs	374				296
Net loss	—		—		—		—		—		—		(3,195)		(1,100)		(4,295)
Reconciliation of cash, cash equivalents, and restricted cash
Balance—June 30, 2023	163,456		$	16	37,654		$	4	$	1,493,586	$	(2,012)	$	(202,298)	$	456,734	$	1,746,030
Cash and cash equivalents	$	17,425			$	64,273
Restricted cash, included in other current assets	500				500
Total cash, cash equivalents, and restricted cash	$	17,925			$	64,773

See notes to condensed consolidated financial statements.

POWERSCHOOL HOLDINGS, INC.


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)


	Six Months Ended June 30,
	2024		2023
Cash flows from operating activities:
Net loss	$	(48,552)	$	(19,108)
Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization	72,477		63,664
Share-based compensation	33,168		32,043
Amortization of operating lease right-of-use assets	1,451		1,599

Change in fair value of contingent consideration	(99)		(635)
Amortization of debt issuance costs	2,975		1,761
(Benefit from) provision for allowance for doubtful accounts	(953)		1,364
Loss (gain) on lease modification	2,291		53
Loss (gain) on sale/disposal of property and equipment	(501)		41
Changes in operating assets and liabilities — net of effects of acquisitions:
Accounts receivables	(10,841)		(25,151)
Prepaid expenses and other current assets	(4,954)		(2,687)
Other assets	376		(3,277)
Accounts payable	1,346		(183)
Accrued expenses	(8,615)		(12,207)
Other liabilities	(3,449)		(3,607)
Deferred taxes	(948)		(2,834)
Tax Receivable Agreement liability	945		385
Deferred revenue	(173,156)		(123,962)
Net cash used in operating activities	(137,039)		(92,741)
Cash flows from investing activities:
Purchases of property and equipment	(4,951)		(938)
Proceeds from sale of property and equipment	839		—
Investment in capitalized product development costs	(18,070)		(19,948)

Acquisitions—net of cash acquired	(36,062)		—

Payment of acquisition-related deferred consideration	(5,800)		—
Net cash used in investing activities	(64,044)		(20,886)


	Six Months Ended June 30,
	2024		2023
Cash flows from financing activities:
Taxes paid related to the net share settlement of equity awards	(117)		(1,425)
Proceeds from Revolving Credit Agreement	350,000		10,000




Repayment of Revolving Credit Agreement	(163,000)		—

Repayment of First Lien Debt	(4,190)		(3,875)




Payment of contingent consideration	(245)		—

Net cash provided by financing activities	182,448		4,700
Effect of foreign exchange rate changes on cash	259		(161)
Net decrease in cash, cash equivalents, and restricted cash	(18,376)		(109,088)
Cash, cash equivalents, and restricted cash—Beginning of period	39,554		137,982
Cash, cash equivalents, and restricted cash—End of period	$	21,178	$	28,894
Supplemental disclosures of cash flow information:
Cash paid for interest	$	39,770	$	27,669
Cash paid for income taxes	$	1,419	$	1,806
Supplemental disclosures of noncash investing and financing activities:
Property and equipment additions in accounts payable and accrued expenses	$	231	$	83
Capitalized interest related to investment in capitalized product development costs	$	838	$	753
Reconciliation of cash, cash equivalents, and restricted cash
Cash and cash equivalents	$	20,678	$	28,394
Restricted cash, included in other current assets	500		500
Total cash, cash equivalents, and restricted cash	$	21,178	$	28,894

See notes to condensed consolidated financial statements.

POWERSCHOOL HOLDINGS, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1. BUSINESS

Background and Nature of Operations

PowerSchool Holdings, Inc. (the “Company,” “PowerSchool,” “we,” “us,” or “our”) was formed as a Delaware corporation on November 30, 2020 for the purpose of completing an initial public offering (“IPO”) and a series of transactions in order to carry on the business of PowerSchool Holdings LLC (“Holdings LLC”), formerly known as Severin Holdings, LLC. Our Principal Stockholders are Onex Partners Managers LP (“Onex”) and Vista Equity Partners (“Vista”).

The transactions included amendments to the Company’s operating agreement to modify its capital structure by replacing the membership interests then held by its existing owners with a new class of membership interests (“LLC Units”) held initially by Severin Topco LLC (“Topco LLC”), a portion of which have a participation threshold (the “Participation Units”) and appointing the Company as the sole managing member of Holdings LLC; issuance of unrestricted and restricted Class A common stock, par value $0.0001 per share, of the Company (the “Class A common stock”) in exchange for vested and unvested pre-IPO share-based awards, issuance of 39,928,472 shares of Class B common stock, par value $0.0001 per share, of the Company (the “Class B common stock”) to Topco LLC, on a one-to-one basis with the number of LLC Units (other than Participation Units), restructuring of certain entities (“Blocker Entities”) associated with the Principal Stockholders, and execution of an exchange agreement (the “Exchange Agreement”) with Topco LLC. Pursuant to the Exchange Agreement, Topco LLC is entitled to exchange LLC Units (other than Participation Units), together with an equal number of shares of Class B common stock, for shares of Class A common stock on a one-for-one basis or, at its election, for cash from a substantially concurrent public offering or private sale. Participation Units may be exchanged for a number of shares of Class A common stock based on an exchange formula that takes into account the current value of a share of Class A common stock and a pre-determined participation threshold. Additionally, the Company entered into a tax receivable agreement (the “TRA”) with Topco LLC, and the Principal Stockholders that provides for the payment by the Company to Topco LLC and the Principal Stockholders, collectively, of 85% of the amount of cash savings, if any, in U.S. federal, state and local income taxes. Collectively, these transactions are referred to as “Organizational Transactions”.

The Company’s cloud platform is an integrated, enterprise-scale suite of solutions purpose-built for the K-12 education market. The Company’s platform is embedded in school workflows and is used by educators, students, administrators, and parents. Its cloud-based technology platform helps schools and districts efficiently manage state reporting and related compliance, special education, finance, human resources, talent, registration, attendance, funding, learning, instruction, grading, assessments, communications, and analytics in one unified platform. The Company’s integrated technology approach streamlines operations, aggregates disparate data sets, and develops insights using predictive modelling and machine learning.

The Company is headquartered in Folsom, California, and together with its subsidiaries has locations in the United States (“U.S.”), Canada, India, and the United Arab Emirates.

Proposed Merger with Bain Capital Private Equity, LP

Merger Agreement

On June 6, 2024, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with BCPE Polymath Buyer, Inc., a Delaware corporation (“Parent”), and BCPE Polymath Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Parent (“Merger Sub”). Parent and Merger Sub are affiliates of investment funds advised by Bain Capital Private Equity, LP. Pursuant to the Merger Agreement, Merger Sub will be merged with and into the Company, with the Company surviving as a wholly owned subsidiary of Parent (the “Merger”).

On June 7, 2024, the holders of a majority of the outstanding shares of Class A common stock and Class B common stock executed a written stockholder consent approving and adopting the Merger Agreement. The Merger is expected to close in the second half of fiscal year 2024, subject to satisfaction of closing conditions and regulatory requirements.

Effect on Capital Stock

Upon the terms and subject to the conditions set forth in the Merger Agreement, upon the effective time of the Merger (the “Effective Time”), each share of Class A common stock that is issued and outstanding as of immediately prior to the Effective Time, will be automatically cancelled, extinguished and converted into the right to receive $22.80, without interest thereon. Upon the terms and subject to the conditions set forth in the Merger Agreement, at the Effective Time, each share of Class B common stock that is issued and outstanding as of immediately prior to the Effective Time, will be automatically cancelled and no payment shall be made with respect thereto.

Closing Conditions

The closing of the Merger is subject to certain conditions, including (i) the Company’s receipt of written consent of stockholders adopting the Merger Agreement (which was satisfied on June 7, 2024), (ii) the expiration or termination of the waiting periods applicable to the transactions set forth in the Merger Agreement under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (with such waiting period having expired at 11:59 pm ET on July 22, 2024), (iii) an information statement shall have been mailed to the Company’s stockholders at least 20 days prior to the closing date, (iv) a Change of Control Exchange (as defined in the Amended and Restated Limited Liability Company Agreement of PowerSchool Holdings, LLC) shall have occurred and become effective as of immediately prior to the Effective Time, (v) the TRA Amendment (as defined below) shall be in full force and effect and (vi) other customary conditions for a transaction of this type, such as the absence of any legal restraint prohibiting the consummation of the transaction and the absence of any Company Material Adverse Effect (as defined in the Merger Agreement) since the date of the Merger Agreement that has occurred that is continuing. The closing of the transactions set forth in the Merger Agreement will not occur prior to September 30, 2024 without the prior written consent of Parent.

Termination Rights and Termination Fee

The Merger Agreement contains certain customary termination rights for the Company and Parent, including if the Merger is not consummated on or before the “outside date” of March 6, 2025 (the “Termination Date”). In the case of termination, under certain conditions, the Company will be required to pay Parent a termination fee equal to $134,650,000. Parent is also required to pay the Company a termination fee equal to $269,300,000 under certain conditions.

Pursuant to the rules adopted by the SEC, the Company prepared and filed with the SEC on July 23, 2024 a Preliminary Information Statement on Schedule 14C, containing more information about the Merger Agreement and the Merger.

Transaction costs for the three months ended June 30, 2024 related to the Merger were approximately $13.2 million and were recorded as selling, general, and administrative expenses in the consolidated statements of operations and comprehensive loss.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying interim condensed consolidated balance sheet as of ~~March~~June 3130, 2024, the interim condensed consolidated statements of operations and comprehensive loss and stockholders’ equity for the three and six months ended ~~March~~June 3130, 2024 and 2023, and cash flows for the ~~three~~six months ended ~~March~~June 3130, 2024 and 2023, and the notes to such interim condensed consolidated financial statements are unaudited.

These unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the applicable rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) for interim financial information. As permitted under those rules, we have condensed or omitted certain footnotes or other financial information that are normally required by GAAP for annual financial statements.

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These unaudited interim condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and, in management’s opinion, include all adjustments necessary to state fairly the consolidated financial position of the Company as of ~~March~~June 3130, 2024, the results of operations for the three and six months ended ~~March~~June 3130, 2024 and 2023 and cash flows for the ~~three~~six months ended ~~March~~June 3130, 2024 and 2023. These adjustments consist of normal and recurring items. The results of operations for the ~~three~~six months ended ~~March~~June 3130, 2024 and cash flows for the ~~three~~six months ended ~~March~~June 3130, 2024 are not necessarily indicative of the results expected for the year ending December 31, 2024 or any future interim or annual period. Our unaudited interim condensed consolidated financial statements should be read in conjunction with the audited annual consolidated financial statements and related notes provided in our Annual Report on Form 10-K for the year ended December 31, 2023.

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

Use of estimates is required in the preparation of the consolidated financial statements in conformity with GAAP. Management makes estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management evaluates its estimates and judgments. Management bases its estimates and judgments on historical experience and on various other factors that it believes are reasonable under the circumstances.

The estimates the Company evaluates include, but are not limited to:

•the fair value of assets acquired and liabilities assumed in business combinations, including acquired intangible assets, goodwill, contingent consideration, and liabilities associated with deferred revenue and deferred taxes;

•the average period of benefit related to contract cost assets;

•the allowance for doubtful accounts;

•the fair value of certain stock awards;

•the useful lives and recoverability of long-lived assets, including capitalized product development costs

•the recognition, measurement, and valuation of deferred income taxes

•the actual amounts and timing of payments under the Tax Receivable Agreement

Actual results could differ from those estimates under different assumptions or conditions.

Accounting Pronouncements Recently Adopted

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740), Improvements to Income Tax Disclosure. This update enhances the disclosures for income tax rate reconciliation whereby entities are required to disclose specific categories in the rate reconciliation and provide additional information for reconciling items which meet a certain qualitative threshold. The ~~guidance~~Company isearly ~~effective~~adopted ~~for~~ the ~~Company~~guidance ~~beginning~~ on January 1, 2024. The accounting pronouncement did not have a material impact on our Consolidated Financial Statements and related disclosures.

Cash and Cash Equivalents

The Company considers all highly liquid investment securities with remaining maturities at the date of purchase of three months or less to be cash equivalents.

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Significant Accounting Policies

There have been no changes to our significant accounting policies described in our Annual Report on Form 10-K for the year ended December 31, 2023 that have had a material impact on our condensed consolidated financial statements and related notes.

3. BUSINESS COMBINATIONS

The Company completed one acquisition during the ~~three~~six months ended ~~March~~June 3130, 2024 and two acquisitions in fiscal year 2023. The purchase price allocation for these acquisitions, discussed in detail below, reflects various fair value estimates and analyses, including certain tangible assets acquired and liabilities assumed, the valuation of intangible assets acquired, income taxes and goodwill. Measurement period adjustments are recorded in the reporting period in which the estimates are finalized and adjustment amounts are determined. The measurement period is one year from the acquisition date. The fair value of the assets and liabilities acquired are based on valuations using the Level 3, unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The valuation techniques include the use of a discounted cash flow model in an income or market based valuation approach.

The results of operations of these business combinations have been included in the Company’s consolidated financial statements from their respective acquisition dates.

Fiscal 2024 Acquisitions

Allovue, Inc (“Allovue”)

On January 22, 2024, the Company acquired all of the equity interests of Allovue. Allovue is a leading provider of K-12 financial budgeting and planning software. The purpose of the acquisition was to enhance and expand PowerSchool’s product offerings.

The total purchase price for Allovue was $38.2 million, which included cash of $37.0 million and deferred consideration of $1.2 million. Transaction costs of $1.3 million were incurred related to this acquisition and are recorded in acquisition costs in the consolidated statements of operations and comprehensive loss. The Company has accounted for this acquisition as a business combination and recognized net tangible liabilities of $1.9 million and recognized $9.0 million of intangible assets consisting of developed technology of $5.4 million, customer relationships of $2.8 million, and trademarks of $0.8 million. The acquired net assets assumed were recorded at their estimated fair values. The estimated values of the intangible assets were determined by the assistance of valuation specialists and estimates made by management.

The Company recorded goodwill of $31.0 million, none of which is expected to be deductible for tax purposes. The goodwill is a result of the growth expected by creating a comprehensive education technology portfolio.

Fiscal 2023 Acquisitions

Jarulss Software Solutions Private Limited (“Neverskip”)

On August 9, 2023, the Company acquired all of the equity interests of Neverskip. Neverskip is a leading provider of school solutions software in India. The purpose of the acquisition was to enhance and expand PowerSchool’s product offerings.

The total purchase price for Neverskip was $10.0 million, which was paid in cash. Transaction costs of $0.7 million are recorded in acquisition costs in the consolidated statements of operations and comprehensive loss. The Company has accounted for this acquisition as a business combination and recognized net tangible liabilities of $2.4 million and recognized $6.6 million of intangible assets consisting of developed technology of $1.8 million customer relationships of $4.9 million and $0.01 million of trademarks. The Company recorded goodwill of $5.7 million arising from the acquisition, none of which is expected to be deductible for U.S. income tax purposes.

1215

The goodwill is a result of the growth expected from continuing to create a comprehensive education technology portfolio.

SchoolMessenger

On October 2, 2023, the Company acquired all of the equity interests of SchoolMessenger. SchoolMessenger is a leading provider of K-12 communication tools in North America. The purpose of the acquisition was to enhance and expand PowerSchool’s product offerings.

The total purchase price for SchoolMessenger was $300.3 million, which included cash of $290.3 million and deferred consideration of $10.0 million. Transaction costs of $2.3 million were incurred in the year-ended December 31, 2023 related to this acquisition and are recorded in acquisition costs in the consolidated statements of operations and comprehensive loss.

The Company has accounted for this acquisition as a business combination. The consideration and the acquisition date fair values of the assets acquired and liabilities assumed are as follows (in thousands):


Accounts receivable	$	14,027
Prepaid expenses and other assets	1,128
Property and equipment	63
Right of use asset	409
Intangible asset - developed technologies	26,500
Intangible asset - customer relationships	43,600
Intangible asset - trademarks	8,100
Total assets acquired	93,827
Accounts payable	(2,326)
Accrued expenses	(5,693)
Lease liability	(409)
Other liabilities	(539)
Deferred revenue	(30,240)
Deferred taxes	(2,169)
Net assets acquired	52,451
Goodwill	247,815
Total consideration	$	300,266

The acquired net assets assumed were recorded at their estimated fair values. The estimated values of the intangible assets were determined by the assistance of valuation specialists and estimates made by management. The Company recorded $247.8 million of goodwill arising from the acquisition of SchoolMessenger, the majority of which is expected to be deductible for tax purposes. The goodwill is a result of the growth expected by creating a comprehensive education technology portfolio.

Historical results of operations for Neverskip, SchoolMessenger, and Allovue were not material. Therefore, historical results of operations subsequent to the acquisition date and pro forma results of operations have not been presented.

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4. REVENUE

Disaggregation of Revenue

The following table depicts the disaggregation of revenue according to the Company’s revenue streams. The Company believes this depicts the nature, amount, timing and uncertainty of revenue and cash flows consistent with how we evaluate our financial statements (in thousands):

	Three Months Ended March 31,
	Three Months Ended June 30,			Six Months Ended June 30,
		2024		2023		2024		2023
SaaS		$	~~138~~141,~~316~~614	$	~~113~~118,~~964~~288	$	279,929	$	232,252
Professional services		1619,~~686~~321		1620,~~233~~197		36,007		36,429
Software maintenance		28,~~611~~515		2728,~~109~~215		57,127		55,324
License and other		12,~~354~~142		27,~~148~~197		3,496		9,345
Total revenue		$	~~184~~191,~~967~~592	$	~~159~~173,~~454~~897	$	376,559	$	333,350

Revenue recognized for the three ~~months~~and ~~ended~~six ~~March~~June 3130, 2024 and 2023 from performance obligations satisfied in the prior periods was immaterial.

Revenue by principal geographic areas based on where the customer is located was as follows (in thousands):

	Three Months Ended March 31,
	Three Months Ended June 30,			Six Months Ended June 30,
		2024		2023		2024		2023
United States		$	~~170~~176,~~172~~011	$	~~148~~162,~~807~~579	$	346,182	$	311,385
Canada		1110,~~004~~969		8,~~178~~475		21,973		16,653
Other		34,~~791~~612		2,~~469~~843		8,404		5,312
Total revenue		$	~~184~~191,~~967~~592	$	~~159~~173,~~454~~897	$	376,559	$	333,350

The Company had no customers accounting for more than 10% of total revenue for the periods presented.

Deferred Revenue

The changes in the deferred revenue balance were as follows (in thousands):

	March 31, 2024		December 31, 2023
	June 30, 2024		December 31, 2023
Balance at beginning of period	$	379,783	$	315,839
Decrease from revenue recognized	(~~150~~319,~~512~~247)		(311,189)
Increase from acquisitions	5,148		20,526
Increase from current year net deferred revenue additions	49147,~~238~~673		354,607
Balance at end of period	$	~~283~~213,~~657~~357	$	379,783

As of ~~March~~June 3130, 2024, the Company expects to recognize revenue on approximately 97% of these remaining performance obligations over the next 12 months, with the balance recognized thereafter.

The estimated revenues from the remaining performance obligations do not include uncommitted contract amounts such as (i) amounts that are cancellable by the customer without significant penalty, (ii) future billings for time and material contracts, and (iii) amounts associated with optional renewal periods.

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Contract Cost Assets

Contract cost assets are included in prepaid expenses and other current assets and other assets, respectively, on the consolidated balance sheets as follows (in thousands):

	March 31, 2024		December 31, 2023
	June 30, 2024		December 31, 2023
Contract costs, current	$	78,~~900~~332	$	7,695
Contract costs, noncurrent	2728,~~933~~552		28,473
Total contract costs	$	3536,~~833~~884	$	36,168

Amortization expense for contract cost assets was $12.90 million and $13.59 million for the three and six months ended ~~March~~June 3130, 2024, respectively, and $1.5 million and $3.0 million for the three and six months ended June 30, 2023, respectively. There was no impairment of contract cost assets during the periods presented.

5. PROPERTY AND EQUIPMENT—NET

Property and equipment by category are as follows (in thousands):

	March 31, 2024		December 31, 2023
	June 30, 2024		December 31, 2023
Computer and software	15,~~524~~660		16,073
Furniture and fixtures	1,~~568~~148		1,641
Leasehold improvements	5,~~514~~786		2,387
Property and equipment	22,~~606~~594		20,101
Less accumulated depreciation	(14,~~425~~821)		(15,098)
Property and equipment—net	$	87,~~181~~773	$	5,003

Depreciation expense was $0.9 million and $01.98 million for the three and six months ended ~~March~~June 3130, 2024, respectively, and $0.8 million and $1.7 million for the three and six months ended June 30, 2023, respectively.

6. CAPITALIZED PRODUCT DEVELOPMENT COSTS—NET

Capitalized product development costs and related accumulated amortization consist of the following (in thousands):

	March 31, 2024		December 31, 2023
	June 30, 2024		December 31, 2023
Gross capitalized product development costs	$	~~204~~213,~~070~~802	$	194,341
Less accumulated amortization	(91100,~~260~~141)		(82,252)
Capitalized product development costs—net	$	~~112~~113,~~810~~661	$	112,089

Amortization of capitalized product development costs, included in the cost of revenue section of the consolidated statements of operations and comprehensive loss, were $98.19 million and $718.20 million for the three and six months ended ~~March~~June 3130, 2024, respectively, and $7.4 million and $14.6 million for the three and six months ended June 30, 2023, respectively.

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7. GOODWILL

The changes in the carrying amounts of goodwill were as follows (in thousands):

Balance—December 31, 2023	$	2,740,725
Additions due to acquisition	31,035
Other adjustments1	(~~789~~2,794)
Balance—March 31, 2024	$	2,770,971
Balance—June 30, 2024	$	2,768,966

_____________

1 Includes adjustments of acquisition-date fair value within the one-year measurement period and effects of foreign currency translation.

8. OTHER INTANGIBLE ASSETS—NET

Intangible assets are amortized using the straight-line method based on the expected useful lives of the assets. The carrying values of acquired amortizing intangible assets are as follows (in thousands):

March 31, 2024

Weighted- Average Useful Life

December 31, 2023

Weighted- Average Useful Life

June 30, 2024

Weighted- Average Useful Life

December 31, 2023

Weighted- Average Useful Life

Intangible Assets—Gross

Developed technology

327,~~273~~237

8 years

321,957

8 years

Customer relationships

793,~~882~~808

14 years

791,253

14 years

Trademarks

62,~~387~~383

9 years

61,595

9 years

Other

259

3 years

259

3 years

1,183,~~801~~687

1,175,064

Accumulated Amortization

Developed technology

(~~179~~189,~~640~~373)

(169,777)

Customer relationships

(~~281~~296,~~406~~372)

(266,473)

Trademarks

(2931,~~694~~220)

(28,092)

Other

(~~108~~131)

(87)

(~~490~~517,~~848~~096)

(464,429)

Intangible Assets—Net

Developed technology

~~147~~137,~~633~~864

152,180

Customer relationships

~~512~~497,~~476~~436

524,780

Trademarks

3231,~~693~~163

33,503

Other

~~151~~128

172

~~692~~666,~~953~~591

710,635

Amortization of developed technology is recorded in cost of revenue, while the amortization of trademarks, customer relationships and other intangibles is included in operating expense on the Company’s consolidated statements of operations and comprehensive loss.

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The following table summarizes the classification of amortization expense of intangible assets (in thousands):

	Three Months Ended March 31,
	Three Months EndedJune 30,			Six Months Ended June 30,
		2024		2023		2024		2023
Cost of revenue		$	9,~~872~~738	$	8,~~574~~575	$	19,610	$	17,148
Operating expense		16,~~563~~518		15,~~105~~109		33,081		30,215
Total amortization of acquired intangible assets		$	26,~~435~~256	$	23,~~679~~684	$	52,691	$	47,363

The estimated future amortization of intangible assets as of ~~March~~June 3130, 2024, is as follows (in thousands):

Year Ending December 31,
2024 (remaining nine months)	$	78,730
2024 (remaining six months)	$	53,118
2025	~~104~~106,~~854~~147
2026	9294,~~412~~010
2027	7677,~~049~~118
2028	7375,~~664~~181
Thereafter	~~267~~261,~~244~~017
Total	$	~~692~~666,~~953~~591

9. ACCRUED EXPENSES

The following table presents the detail of accrued expenses (in thousands):

	March 31, 2024		December 31, 2023
	June 30, 2024		December 31, 2023
Accrued compensation	$	2328,~~575~~879	$	43,075
Accrued interest	13,~~197~~888		12,654
Accrued taxes	~~1,896~~297		1,530
TRA liability, current	43,~~030~~653		21,957
Other accrued expenses	2941,~~160~~377		37,055
Total accrued expenses	$	~~110~~128,~~858~~094	$	116,271

10. LONG-TERM DEBT AND REVOLVING CREDIT AGREEMENT

First Lien Credit Agreement (“First Lien”)

In August 2018, the Company entered into a loan agreement with a consortium of lenders which provided $775.0 million of term loans. The First Lien also provided a Revolving Credit Agreement, discussed in more detail below.

On July 31, 2023, the Company entered into an incremental facility to the First Lien to borrow an additional $100.0 million aggregate principal amount of incremental term loans, increasing the principal balance outstanding under the First Lien to $840.1 million as of the date of the amendment. Debt issuance costs of $0.8 million were recorded as a reduction to the carrying value of the related debt.

On October 12, 2023, the Company amended the First Lien to extend the maturity date on the agreement from July 31, 2025 to August 1, 2027. Debt issuance costs of $13.1 million were recorded as a reduction to the carrying value of the related debt. The amended First Lien is repayable in quarterly payments of $2.1 million through August 1, 2027, with all remaining outstanding principal due on August 1, 2027.

1720

As of ~~March~~June 3130, 2024, the interest rate for the First Lien is the rate per annum equal to the Secured Overnight Financing Rate (“SOFR”), plus the applicable margin. The applicable margin is initially 3.25% per annum with a 0.25% step down based on the First Lien Net Leverage Ratio. The interest rate for the First Lien as of ~~March~~June 3130, 2024 and December 31, 2023 was 8.3133% and 8.38%, respectively.

The First Lien is collateralized on a first lien basis by certain assets and property of the Company and includes covenants that among other things limit our ability to incur additional debt or issue dividends. As of ~~March~~June 3130, 2024, we were in compliance with all covenants associated with the First Lien.

Revolving Credit Agreement

The First Lien provides for a Revolving Credit Agreement allowing the Company to borrow funds from time to time. In July 2021, the Revolving Credit Agreement was amended and permitted the Company to borrow up to $289.0 million. On October 12, 2023, the Revolving Credit Agreement was further amended to permit the Company to borrow up to $400.0 million and extended the maturity date from May 2, 2025 to May 2, 2027. In connection with the increase of the borrowing capacity and the extension of the maturity date, the Company paid fees of $2.0 million, which was recorded as capitalized debt issuance cost and presented within other assets on the consolidated balance sheet.

The interest rate is equal to SOFR, plus the applicable margin. The applicable margin is initially 3.25% per annum with up to a 0.50% step down based on the First Lien Net Leverage Ratio. We are also required to pay a commitment fee on the unused portion of the Revolving Credit Agreement of 0.50% per annum with up to a 0.25% step down based on the First Lien Net Leverage Ratio, payable quarterly in arrears.

During the ~~three~~six months ended ~~March~~June 3130, 2024, the Company borrowed $~~140~~350.0 million on the Revolving Credit Agreement. As of ~~March~~June 3130, 2024, the outstanding balance on the revolving credit facility was $~~125~~187.0 million and there was no outstanding balance on the facility as of December 31, 2023.

The Revolving Credit Agreement requires the Company to maintain a First Lien Net Leverage Ratio (as defined therein) of not more than 7.75 to 1.00 if the Company has an outstanding balance on the Revolving Credit Agreement of greater than 35% of the borrowing capacity (excluding certain letters of credit) at a quarter end. As of ~~March~~June 3130, 2024 and December 31, 2023, the Company’s ~~outstanding~~was ~~balances~~in ~~under~~compliance ~~the~~with ~~Revolving~~all ~~Credit~~covenants ~~Agreement~~associated ~~were~~with ~~less than 35% of~~ the ~~borrowing~~Revolving ~~capacity~~Credit Agreement.

The following table presents the outstanding long-term debt (in thousands):

	March 31, 2024		December 31, 2023
	June 30, 2024		December 31, 2023
Total outstanding principal—First Lien	$	~~835~~833,~~831~~736	$	837,926
Less current portion of long-term debt	(8,379)		(8,379)
Less unamortized debt discount	(4,~~496~~160)		(4,832)
Less unamortized debt issuance costs	(1211,~~459~~528)		(13,390)
Total long-term debt—net	$	~~810~~809,~~497~~669	$	811,325

Maturities on long-term debt outstanding as of ~~March~~June 3130, 2024 are as follows (in thousands):

Year Ending December 31,
2024 (remaining nine months)	$	6,284
2024 (remaining six months)	$	4,190
2025	8,379
2026	8,379
2027	812,~~789~~788
Total	$	~~835~~833,~~831~~736

1821

11. ~~LEASES~~Leases

The Company leases its office and data center facilities under non-cancelable operating leases that expire at various times through 2033. The Company is also responsible for certain real estate taxes, utilities, and maintenance costs related to its office facilities. Rent expense was $1.21 million and $12.03 million for the three and six months ended ~~March~~June 3130, 2024, respectively, and $0.9 million and $1.9 million for the three and six months ended June 30, 2023, respectively.

In the three months ended June 30, 2024, the Company vacated several smaller office locations prior to their respective contractual lease termination date. As a result, $2.3 million of right-of-use assets associated with these properties were written-off. Additionally, the Company incurred an additional $0.3 million of costs associated with closing these office locations. These costs were recorded as selling, general and administrative expenses within operating expenses in the consolidated statements of operations and comprehensive loss.

In August 2023, the Company entered into an operating lease agreement for an office in Bangalore, India. The lease requires future minimum undiscounted payments of approximately $18.0 million over the ten year lease term. The lease includes a rent abatement period of six months, from August 2023 through January of 2024, during which the Company is exempt from paying the base rent. As a result, a lease liability of approximately $12.2 million and corresponding right-of-use asset of approximately $12.3 million were recorded.

Operating lease costs for the three and six months ended ~~March~~June 3130, 2024 and 2023 are as follows (in thousands):

	Three Months EndedMarch 31,
	Three Months EndedJune 30,				Six Months EndedJune 30,
	2024		2023		2024		2023
Operating lease cost	$	~~1,166~~971	$	~~954~~943	$	2,137	$	1,897
Short-term lease cost	3036		173		66		19
Variable lease cost and other, net	~~384~~464		~~374~~199		848		573
Total lease cost	$	1,~~580~~471	$	1,~~345~~145	$	3,051	$	2,489

Supplemental cash flow information related to leases as of ~~March~~June 3130, 2024 and 2023 is as follows (in thousands):

	Three Months EndedMarch 31,
	Six Months EndedJune 30,
	2024		2023
Cash paid for operating leases	$	23,~~041~~471	$	13,~~769~~663
ROU assets obtained in exchange for new lease liabilities	$786	~~786~~	$—	—

Future minimum lease payments under non-cancelable operating lease agreements as of ~~March~~June 3130, 2024 are as follows (in thousands):

Year Ending December 31,
2024 (remaining nine months)	$	3,808
2025	3,559
2026	1,987
2027	1,913
2028	1,904
Thereafter	9,659
Total undiscounted cash flows	$	22,830
Less imputed interest	5,532
Present value of lease liabilities	$	17,298
Weighted average remaining term (years)	7.2
Weighted average discount rate	7.1		%


Year Ending December 31,
2024 (remaining six months)	$	2,400
2025	3,559
2026	1,988
2027	1,913
2028	1,905
Thereafter	9,661
Total undiscounted cash flows	$	21,426
Less imputed interest	5,244
Present value of lease liabilities	$	16,182
Weighted average remaining term (years)	7.3
Weighted average discount rate	7.2		%

12. COMMITMENTS AND CONTINGENCIES

Contractual Obligations

We have contractual obligations related to, among others, data centers, cloud hosting arrangements, and other services we purchase as part of our normal operations. In certain cases, these arrangements require a minimum annual purchase commitment by us. As of ~~March~~June 3130, 2024, the remaining aggregate minimum purchase commitment under these arrangements was approximately $~~186~~184.89 million through 2028.

Self-Insured Health Plan

The Company is generally self-insured for losses and liabilities related to health benefits. The estimated liability for incurred, but not reported, medical claims is $12.80 million and $1.6 million as of ~~March~~June 3130, 2024 and December 31, 2023, respectively.

Indemnification

The Company enters into indemnification arrangements within customer contracts as part of the ordinary course of its business. Under the Company’s standard contractual terms, these arrangements typically consist of the Company agreeing to indemnify, hold harmless and reimburse the indemnified customer(s) for losses suffered or incurred directly, in connection with any trade secret, copyright, patent, or other intellectual property infringement claim by any third-party with respect to the Company’s technology. The term of these indemnification agreements is generally concurrent with the term of the contract, but in some cases, may survive the expiration or termination of the underlying contract. The maximum potential amount of future payments the Company could be required to make under these agreements is not determinable because it involves claims that may be made against the Company in the future, but have not yet been made.

The Company carries Directors and Officers insurance policies pursuant to the Company’s certificate of formation, bylaws, and applicable Delaware law.

Legal Proceedings

From time to time, the Company is involved in disputes, litigation, and other legal actions. On a quarterly basis, the Company evaluates developments in its legal matters that could affect the amount of liability that has been previously accrued, if any, or result in the Company accruing a liability, and the matters and related ranges of possible losses disclosed, and makes adjustments and changes to our disclosures as appropriate. Significant judgment is required to determine both (i) the likelihood of loss and (ii) the estimated amount of such loss related to such legal matters. Until the final resolution of such legal matters, there may be an exposure to loss, and such amounts could be material. For legal proceedings for which there is a reasonable possibility of loss (meaning those losses for which the likelihood is more than remote but less than probable), the Company has determined it does not have material exposure on an aggregate basis at this time.

The Company received demand letters from three purported stockholders of the Company pursuant to Section 220 of the Delaware General Corporation Law, seeking to inspect books and records of the Company relating to, among other things, the Merger. Additionally, the Company has received two other demand letters from two purported stockholders of the Company, which generally demand the disclosure of certain additional information that was allegedly omitted from the Preliminary Information Statement on Schedule 14C filed in connection with the Merger. At this time, the matters remain unresolved.

13. STOCKHOLDERS’ EQUITY AND NON-CONTROLLING INTEREST

Stockholders’ Equity

The Company amended and restated its certificate of incorporation effective July 27, 2021 to authorize (i) 50,000,000 shares of preferred stock, par value $0.0001 per share, (ii) 500,000,000 shares of Class A common stock, par value $0.0001 per share, and (iii) 300,000,000 shares of Class B common stock, par value $0.0001 per share. Holders of our Class A common stock and Class B common stock vote together as a single class on all matters presented to stockholders for their vote or approval, except as otherwise required by law. Each share of Class A common stock and Class B common stock entitles its holder to one vote on all matters presented to our stockholders generally.

As of ~~March~~June 3130, 2024, the holders of our issued Class A common stock collectively represented approximately 81.56% of the economic interest and voting power in the Company and Class B common stock collectively represented approximately 18.54% of the voting power in the Company. As of December 31, 2023, the Class B common stock collectively held approximately 18.6% of the voting power in the Company.

Non-controlling interest

The weighted average non-controlling interest percentage used to calculate the net loss and other comprehensive loss attributable to the non-controlling interest holders in the three months ended ~~March~~June 3130, 2024 and 2023 was 18.65% and 1918.68%, respectively.

14. SHARE-BASED COMPENSATION

Prior to the IPO, Holdings LLC had historically maintained equity incentive plans for purposes of retaining and incentivizing certain employees of the Company. This plan was replaced by the Company’s 2021 Omnibus Incentive Plan (“2021 Plan”), approved on July 27, 2021 in connection with the IPO. The 2021 Plan initially reserves 19,315,000 shares of the Company’s Class A common stock and provides for the granting of stock options, stock appreciation rights, restricted stock awards (“RSAs”), restricted stock units (“RSUs”), dividend equivalents, other share-based awards, other cash-based awards, substitute awards, and performance awards to eligible employees, consultants, and directors.

Market-share Units (“MSUs”)

In the three months ended June 30, 2024, the Company granted MSUs to certain executives. The target number of awards granted was based on the relative growth of the Company's share price over a two- and three-year performance period beginning on the date of grant and ending on the second and third anniversary of the grant date. These awards are subject to continuous employment through each individual vesting period.

The fair value of the MSUs granted in 2024 was determined using a Monte Carlo simulation approach with the following assumptions: a historical volatility of 51%, 0% dividend yield, and a risk-free interest rate of 4.4%. The historical volatility was determined based on the observed equity volatility for comparable companies. The dividend yield was 0% as the Company does not currently offer a dividend. The risk-free interest rate is based on the yield from the Treasury Constant Maturities consistent with a three-year term associated with the market condition of the awards. The fair value of the awards granted in 2024 was $10.4 million which is recognized on a straight-line basis over the performance periods.

In the first quarter of fiscal year 2023, the Company granted MSUs to certain executives. The target number of awards granted was based on the relative growth of the Company's share price over a two- and three-year performance period beginning on the date of grant and ending on the second and third anniversary of the grant date. These awards are subject to continuous employment through each individual vesting period.

The fair value of the MSUs granted in 2023 was determined using a Monte Carlo simulation approach with the following assumptions: a historical volatility of 58%, 0% dividend yield, and a risk-free interest rate of 3.7%. The historical volatility was determined based on the observed equity volatility for comparable companies. The dividend yield was 0% as the Company does not currently offer a dividend. The risk-free interest rate is based on the yield from the Treasury Constant Maturities consistent with a three-year term associated with the market condition of the awards. The fair value of the awards granted during the first quarter of 2023 was $12.6 million which is recognized on a straight-line basis over the performance periods. ~~The share-based compensation expense of these awards was $1.3 million and immaterial for the three months ended March 31, 2024 and 2023, respectively.~~

The share-based compensation expense of MSU ~~activity~~awards was $2.4 million and $3.7 million for the three and six months ended ~~March~~June 3130, 2024, isrespectively, asand ~~follows:~~$1.3 million and $1.4 million for the three and six months ended June 30, 2023, respectively.

	Market-Share Units	Weighted-Average Grant-Date Fair Value
Balance—December 31, 2023	474,846	26.64
Granted	—	—
Vested	—	—
Canceled	—	—
Balance—March 31, 2024	474,846	26.64

MSU activity for the six months ended June 30, 2024 is as follows:


	Market-Share Units	Weighted-Average Grant-Date Fair Value
Balance—December 31, 2023	474,846	$	26.64
Granted	371,052	28.13
Vested	—	—
Canceled	—	—
Balance—June 30, 2024	845,898	$	27.29

Performance-share units (“PSUs”)

In the three months ended June 30, 2024, the Company granted PSUs to certain employees. The target number of awards granted is based on the achievement of certain financial performance metrics over a two year performance period beginning on the date of grant and ending on the second and third anniversary of the grant date. These awards are subject to continuous employment through each individual vesting period. The fair value of the awards was $9.1 million and was based on the closing stock price on the date of grant. The share-based compensation expense of the awards is determined each period based on the probability of achieving the financial performance metrics. If the financial performance metrics are not met, no compensation cost is recognized and any previously recognized compensation cost is reversed. Share-based compensation expense of PSU awards was $0.5 million for the three months ended June 30, 2024.

PSU activity for the six months ended June 30, 2024 is as follows:


	Performance-Share Units	Weighted-Average Grant-Date Fair Value
Balance—December 31, 2023	—	$	—
Granted	537,799	16.89
Vested	—	—
Canceled	—	—
Balance—June 30, 2024	537,799	$	16.89

RSUs/RSAs

The RSUs granted under the 2021 Plan vest upon the satisfaction of a service-based vesting condition, generally over a four-year period, with a 25% vesting at the end of one year and the remainder quarterly thereafter.

~~RSU and RSA activity for the three months ended March 31, 2024 is as follows:~~25

21RSU and RSA activity for the six months ended June 30, 2024 is as follows:

	Restricted Stock Units	Weighted Average Grant Date Fair Value		Restricted Stock Awards	Weighted Average Grant Date Fair Value
Balance—December 31, 2023	7,170,788	$	20.22	16,530	$	8.19
Granted	~~198~~2,~~260~~760,198	$21.10	~~24.14~~	—	$—	—
Vested	(1,~~048~~662,~~340~~374)	$20.46	~~20.23~~	(816,~~901~~530)	$8.19	~~8.20~~
Canceled	(~~290~~425,~~193~~001)	$19.68	~~19.56~~	—	$—	—
Balance—March 31, 2024	6,030,515	$	20.38	7,629	$	8.17
Balance—June 30, 2024	7,843,611	$	20.51	—	$	—

The following table presents the classification of share-based compensation in the accompanying condensed consolidated statements of operations and comprehensive income (loss) (in thousands):

	Three Months Ended March 31,
	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Cost of revenue
Subscriptions and support	$	1,~~463~~967	$	1,~~388~~623	$	3,430	$	3,011
Service	~~679~~796		~~811~~919		1,475		1,730
Research and development	34,~~480~~779		34,~~729~~536		8,259		8,265
Selling, general, and administrative	811,~~533~~471		810,~~621~~416		20,004		19,037
Total share-based compensation	$	1419,~~155~~013	$	1417,~~549~~494	$	33,168	$	32,043

Share-based compensation capitalized as product development costs was $0.7 ~~million~~ and $01.74 million for the three and six months ended ~~March~~June 3130, 2024, respectively, and $0.8 and $1.5 million for the three and six months ended June 30, 2023, respectively.

As of ~~March~~June 3130, 2024, the total future compensation cost related to unvested share awards is $~~124~~173.67 million, which is expected to be recognized over a weighted-average period of 2.36 years.

15. EARNINGS (LOSS) PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS (EPS)

The table below sets forth a calculation of basic EPS based on net loss attributable to PowerSchool Holdings, Inc., divided by the basic weighted average number of Class A common stock outstanding for the corresponding periods. Diluted EPS of Class A common stock is computed by dividing net loss attributable to common stockholders by the weighted average number of shares of Class A common stock outstanding adjusted to give effect to all potentially dilutive securities, using the treasury stock method.

The Company excluded the shares of Class B common stock from the computation of basic and diluted EPS, as holders of Class B common stock do not have any rights to receive dividends or distributions upon the liquidation or winding up of the Company. Accordingly, separate presentation of EPS of Class B common stock under the two-class method has not been presented.

2226

	Three Months Ended March 31,
	Three Months EndedJune 30,				Six Months EndedJune 30,
	2024		2023		2024		2023
Basic net income (loss) per share:
Numerator:
Net loss	$	(2225,~~848~~704)	$	(144,~~813~~295)	$	(48,552)	$	(19,108)
Less: net loss attributable to non-controlling interest	(35,~~290~~693)		(21,~~960~~100)		(8,983)		(4,060)
Net loss attributable to PowerSchool Holdings, Inc., basic	(1920,~~558~~011)		(113,~~853~~195)		(39,569)		(15,048)
Denominator:
Weighted average shares of Class A common stock, basic	~~165~~166,~~037~~040,~~089~~370		~~160~~163,~~506~~067,~~571~~859		165,538,730		161,794,290
Net loss attributable to PowerSchool Holdings, Inc. per share of Class A common stock, basic	$	(0.12)	$	(0.0702)	$	(0.24)	$	(0.09)
Diluted net income (loss) per share:
Numerator:
Net loss attributable to PowerSchool Holdings, Inc., basic	$	(1920,~~558~~011)	$	(113,~~853~~195)	$	(39,569)	$	(15,048)
Adjustment from LLC Units	(4,~~573~~905)		—(885)		(9,478)		—
Net loss attributable to PowerSchool Holdings, Inc., diluted	(24,~~131~~916)		(114,~~853~~080)		(49,047)		(15,048)
Denominator:
Weighted average shares of Class A common stock, basic	~~165~~166,~~037~~040,~~089~~370		~~160~~163,~~506~~067,~~571~~859		165,538,730		161,794,290
Dilutive impact of LLC Units	37,654,059		—37,654,059		37,654,059		—
Weighted average shares of Class A common stock, diluted	~~202~~203,~~691~~694,~~148~~429		~~160~~200,~~506~~721,~~571~~918		203,192,789		161,794,290
Net loss attributable to PowerSchool Holdings, Inc. per share of Class A common stock, diluted	$	(0.12)	$	(0.0702)	$	(0.24)	$	(0.09)

In addition, the following securities were not included in the computation of diluted shares for the three and six months ended ~~March~~June 3130, 2024 and 2023 because they were antidilutive, but could potentially dilute earnings (loss) per share in the future:

	Three Months EndedMarch 31,
	Three Months EndedJune 30,		Six Months EndedJune 30,
	2024	2023	2024	2023
Unvested RSAs and RSUs	67,~~038~~843,~~144~~611	98,~~536~~839,~~739~~703	7,843,611	8,839,703
LLC units	—	~~37,654,059~~—	—	37,654,059
Market share units	~~474~~845,~~846~~898	474,846	845,898	474,846
Total excluded from diluted EPS calculation	68,~~512~~689,~~990~~509	479,~~665~~314,~~644~~549	8,689,509	46,968,608

16. INCOME TAXES

The Company recorded an income tax expense (benefit) of $(4.97) million and ~~effective tax rate of -27~~$0.1% million for the three and six months ended ~~March~~June 3130, 2024, respectively, and an$(1.7) million ~~insignificant~~and ~~amount~~$(1.8) million offor ~~income~~the ~~tax~~three ~~benefit~~ and ansix months ended June 30, 2023, respectively. The Company’s effective tax rate ofwas 15.5% and (0.3)% for the three and six months ended ~~March~~June 3130, 2024, respectively, and 28.4% and 8.5% for the three and six months ended June 30, 2023, respectively. The income tax expense (benefit) for the three months ended ~~March~~June 3130, 2024 was different than the U.S. federal statutory income tax rate of 21.0% primarily due to earnings not subject to tax, and nondeductible executive compensation~~, and deferred tax expense recognized due to the tax restructuring completed as part of the Allovue acquisition during the three month period~~. The income tax expense (benefit) for the ~~three~~six months ended ~~March~~June 3130, ~~2023~~2024 was different than the U.S. federal statutory income tax rate of 21.0% primarily due to earnings not subject to tax, ~~and~~ nondeductible ~~executive compensation.~~

As of March 31, 2024, the Company had gross unrecognized tax benefits of $10.7 million, all of which, if recognized, would impact the Company’s effective tax rate. The amount of interest and penalties accrued related to the Company’s unrecognized tax benefits is not material to the consolidated financial statements in all periods presented.27

23executive compensation, and deferred tax expense recognized due to the tax restructuring completed as part of the Allovue acquisition. The income tax expense (benefit) for the three and six months ended June 30, 2023 was different than the U.S. federal statutory income tax rate of 21% primarily due to the loss allocated to the non-controlling interest and nondeductible executive compensation during the three and six month period.

As of June 30, 2024, the Company had gross unrecognized tax benefits of $10.9 million, all of which, if recognized, would impact the Company’s effective tax rate. The amount of interest and penalties accrued related to the Company’s unrecognized tax benefits is not material to the consolidated financial statements in all periods presented.

Tax Receivable Agreement

In connection with the Organizational Transactions, the Company entered into a TRA with Topco LLC, Vista Equity Partners and Onex. The TRA provides for the payment by the Company to Topco LLC, Vista Equity Partners and Onex, collectively, of 85% of the amount of tax benefits, if any, that are realized, or in some circumstances are deemed to realize, as a result of (i) certain increases in the tax basis of assets of Holdings LLC and its subsidiaries resulting from purchases of LLC Units with the proceeds of the IPO or exchanges of LLC Units in the future or any prior transfers of interests in Holdings LLC, (ii) certain tax attributes of the Blocker Entities and of Holdings LLC and subsidiaries of Holdings LLC that existed prior to the IPO and (iii) certain other tax benefits related to our making payments under the TRA ~~(collectively, the “Tax Attributes”)~~. The payment obligations under the TRA are not conditioned upon any LLC Unit holder maintaining a continued ownership interest in us or Holdings LLC and the rights of Topco LLC under the TRA are assignable. The Company expects to benefit from the remaining 15% of the tax benefits, if any, that are actually realized.

AsOn ofJune ~~March 31~~6, 2024, ~~$43.0 million~~concurrently with the execution of the Merger Agreement, the Company and the parties to the TRA, ~~was~~entered ~~classified~~into asAmendment aNo. ~~current~~1 ~~liability~~to the TRA (the “TRA Amendment”), pursuant to which the parties agreed, among other things, to amend the TRA such that it will automatically terminate upon the Effective Time and ~~$375.6 million~~Topco ~~was~~LLC, ~~classified~~Vista Equity Partners and Onex agreed to waive certain Tax Benefit Payments (as ~~non-current~~defined in the ~~consolidated~~TRA ~~balance~~Amendment) ~~sheet~~pursuant to the TRA, including all amounts that would have otherwise become payable to the TRA Holders in connection with the consummation of the Merger. From and after the Effective Time, no Early Termination Payment or Tax Benefit Payment (each as defined in the TRA Amendment) will be made to Topco LLC, Vista Equity Partners and Onex pursuant to the TRA.

As of June 30, 2024, $43.7 million of the TRA was classified as a current liability included within accrued expenses and $375.6 million was classified as non-current in the consolidated balance sheet.

17. RELATED-PARTY TRANSACTIONS

The Company has entered into arrangements with Vista Equity Partners for certain services, and the Vista Consulting Group for management consulting, systems implementation, and manpower support (collectively, “Vista”) and arrangements with Onex Partners Manager LP (“Onex”) for general management services, acquisition advisory, and treasury services. These services were provided on a time and material basis and were generally related to integration of the various companies acquired by the Company. Total costs of these related party services were de minimis for ~~the~~all ~~three~~periods ~~months ended March 31, 2024 and 2023, respectively~~presented. We may continue to engage Vista and Onex from time to time, subject to compliance with our related party transactions policy. ~~The Company also entered into arrangements with Onex Partners Manager LP (“Onex”) for general management services, acquisition advisory, and treasury services.~~ Total ~~costs of these related-party services were de minimis for the three months ended March 31, 2024 and 2023, respectively. Total~~ aggregate amounts due to Vista and Onex entities were de minimis ~~and less than $0.1 million~~ as of ~~March~~June 3130, 2024 and December 31, 2023.

The Company also purchased services from entities that share common ownership with Vista and Onex. The cost was $10.3 6 million and $41.89 million for all other services purchased from entities with common ownership for the three and six months ended ~~March~~June 3130, 2024, respectively, and $2.6 million and $7.4 million for the three and six months ended June 30, 2023, respectively. Substantially all of the expenses related to the Vista and Onex services are included in selling, general, and administrative expense in the consolidated statements of operations and comprehensive loss. Amounts due to entities that share common ownership were de$0.1 ~~minimis~~million and $0.2 million as of ~~March~~June 3130, 2024 and December 31, 2023, respectively, and are included in accounts payables and accrued liabilities in the consolidated balance sheet. There were no sales to or outstanding accounts receivable arising from this agreement during or as of the end of any of the periods presented.

The Company has a strategic partnership with EAB Global, Inc. (“EAB”), a portfolio company of Vista, pursuant to a Reseller Agreement (the “Agreement”). Pursuant to the Agreement, EAB serves as, among other terms, the exclusive reseller of the Intersect product in the U.S. and Canada. The Agreement has a ten-year term and includes annual minimum revenue commitments from EAB. The commitment amount for the period was $40.4 million, and will increase upon the anniversary of the Agreement. The Company may begin to revoke its exclusivity with EAB after the fourth year of the Agreement or terminate the relationship upon material breach of the contract. Under the terms of the Agreement, the Company pays a fee to EAB for selling products to third party customers on the Company’s behalf. The Company recognized $4.0 million and $2.3 million in selling, general, and administrative expense and, to a lesser extent, cost of revenue, for fees owed to EAB under the Agreement for the three months ended March 31, 2024 and 2023, respectively.28

The Company has a strategic partnership with EAB Global, Inc. (“EAB”), a portfolio company of Vista, pursuant to a Reseller Agreement (the “Agreement”). Pursuant to the Agreement, EAB serves as, among other terms, the exclusive reseller of the Intersect product in the U.S. and Canada. The Agreement has a ten-year term and includes annual minimum revenue commitments from EAB. The commitment amount for the period was $40.4 million, and will increase upon the anniversary of the Agreement. The Company may begin to revoke its exclusivity with EAB after the fourth year of the Agreement or terminate the relationship upon material breach of the contract. Under the terms of the Agreement, the Company pays a fee to EAB for selling products to third party customers on the Company’s behalf. The Company recognized $4.0 million and $8.0 million in selling, general, and administrative expense and, to a lesser extent, cost of revenue, for fees owed to EAB under the Agreement for the three and six months ended June 30, 2024, respectively, and $4.0 million and $6.3 million for the three and six months ended June 30, 2023, respectively.

In connection with entering into the Merger Agreement, on June 6, 2024, Parent, certain of its affiliates and the Company entered into support and rollover agreements with investment funds affiliated with Vista Equity Partners and Onex Partners Manager LP. Under the support and rollover agreements, the applicable stockholders have agreed to vote or execute consents with respect to all of their shares of the Company’s Class A common stock and Class B common stock in favor of the Merger and the transactions contemplated by the Merger Agreement, subject to certain terms and conditions contained therein. In addition, the applicable stockholders have agreed to “rollover” a portion of their existing equity in the Company and its subsidiaries into an ownership interest in the parent company of Parent.

In February 2023, certain selling stockholders, which included Hardeep Gulati, the Company’s Chief Executive Officer, Topco LLC, and certain funds affiliated with Vista and Onex, conducted a secondary offering of 8,700,000 shares of the Company’s Class A common stock. The Company did not receive any proceeds from the sale of the Class A common stock by the selling stockholders, but bore the costs associated with the secondary offering (other than underwriting discounts and commissions), which were approximately $1.4 million and were recorded as selling, general, and administrative expenses in the consolidated statements of operations and comprehensive loss.

18. EMPLOYEE BENEFIT PLANS

Defined Contribution Plan—The Company has a defined contribution plan under Section 401(k) of the Internal Revenue Code (“401(k) Plan”) covering all full-time employees who meet certain eligibility requirements. Eligible employees may defer a percentage of their pretax compensation, up to the annual maximum allowed by the Internal Revenue Service. Under the 401(k) Plan, the Company matches a portion of the employee contributions up to a defined maximum. The Company made matching contributions of $2.7 million and $25.64 million for the three and six months ended ~~March~~June 3130, 2024, respectively, and $2.7 million and $5.4 million for the three and six months ended June 30, 2023, respectively.

19. SUBSEQUENT EVENTS

The Company has evaluated subsequent events from the consolidated balance sheets date.

In ~~April~~July and August 2024, the Company ~~borrowed~~repaid ~~an additional~~ $3097.0 million of the outstanding balance on its Revolving Credit Agreement. As of ~~May~~August 79, 2024, the outstanding balance on the Revolving Credit Agreement was $~~155~~90.0 million.

2529

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition and results of operations together with the condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed in Part I, Item 1A, “Risk Factors” in our most recent Annual Report on Form 10-K and Part II, Item 1A, “Risk Factors” and in other parts of this Quarterly Report on Form 10-Q. Unless we state otherwise or the context otherwise requires, the terms “we,” “us,” “our,” and “PowerSchool” and similar references refer to PowerSchool Holdings, Inc. and its consolidated subsidiaries, including PowerSchool Holdings LLC (formerly known as Severin Holdings, LLC) (“Holdings LLC”).

Overview

We provide a comprehensive suite of solutions that includes the mission-critical system of record used by state Departments of Education, districts, and schools, who leverage our solutions to deliver insights and analytics to improve education outcomes. As of ~~March~~June 3130, 2024, we serve more than 1718,000 customers, including over 90 of the 100 largest districts by student enrollment in the U.S., over 30 state-, province-, and territory-wide contracts in North America, and sell solutions in over 90 countries globally. Our platform is embedded in school workflows and is used by educators, students, administrators, and parents on a daily basis.

PowerSchool’s cloud platform is the most comprehensive, integrated, enterprise-scale suite of solutions purpose-built for the K-12 market. Our cloud-based technology platform helps our customers efficiently manage state reporting and related compliance, special education, finance, HR, talent, registration, attendance, funding, learning, instruction, behavior, grading, college and career readiness, assessments, communications, and analytics in one unified platform. Through our integrated technology approach, we are positioned to streamline operations, aggregate disparate data sets, and develop insights using predictive modelling, AI, and machine learning. Our ability to transform information into actionable insights improves the efficiency of school operations, the quality of instruction delivered by teachers, and the pace of student growth, generating a profound effect on K-12 educational outcomes.

We have created a strong competitive moat by investing over the past 20 years to build, maintain, and continuously update our K-12 regulatory compliance reporting capabilities that solve state-specific, funding-related regulatory pain points for our customers.

Building the PowerSchool Platform

Our focus and strategy on delivering a comprehensive, integrated platform led to years of coordinated efforts to build an expansive suite of core capabilities required by our customers. Starting as the first web-based SIS, we combined our deep domain expertise in K-12 education with over twenty years of innovation and disciplined acquisition activity to become the core K-12 software platform, with a full suite of cloud-based offerings across student information, enrollment, learning management, assessment, special education, finance, HR, data analytics, communications, and talent management.

From 2015 through ~~March~~June 3130, 2024, we completed 19 strategic acquisitions to thoughtfully build out our platform of K-12 software solutions, building upon years of leadership.

Merger Transaction

On June 6, 2024, the Company, entered into an Agreement and Plan of Merger (the “Merger Agreement”) with BCPE Polymath Buyer, Inc., a Delaware corporation (“Parent”), and BCPE Polymath Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Parent (“Merger Sub”). Parent and Merger Sub are affiliates of investment funds advised by Bain Capital Private Equity, LP. Pursuant to the Merger Agreement, Merger Sub will be merged with and into the Company, with the Company surviving as a wholly owned subsidiary of Parent (the “Merger”). Upon the terms and subject to the conditions set forth in the Merger Agreement, upon the effective time of the Merger (the “Effective Time”), each share of Class A common stock, par value $0.0001 per share, of the Company (the “Class A common stock”) that is issued and outstanding as of immediately prior to the Effective Time,

will be automatically cancelled, extinguished and converted into the right to receive $22.80, without interest thereon. Upon the terms and subject to the conditions set forth in the Merger Agreement, upon the Effective Time, each share of Class B common stock, par value $0.0001 per share, of the Company that is issued and outstanding as of immediately prior to the Effective Time, will be automatically cancelled and no payment shall be made with respect thereto.

On June 7, 2024, the holders of a majority of the outstanding shares of Class A common stock and Class B common stock executed a written stockholder consent approving and adopting the Merger Agreement and the transactions contemplated by the Merger Agreement. The transaction is expected to close in the second half of fiscal year 2024, subject to satisfaction of closing conditions and regulatory requirements.

See Note 1. Business of the condensed consolidated financial statements in this Quarterly Report on Form 10-Q for more information about the proposed Merger and the Merger Agreement.

Our Business Model

We offer our software platform through a cloud-based, SaaS business model under contracts with annual price escalators, and we recognize subscription revenues ratably over annual subscription terms of the contracts. Our SaaS solutions include access to hosted software, software maintenance, product updates and upgrades, and technical and developer support. We sell our SaaS solutions through recurring fee arrangements where revenue is recognized on an annual basis following contract start date, which we refer to as recurring revenue. Our business model provides flexibility and optionality for our customers to purchase and deploy our software platform either through individual add-on solutions, or as a unified platform. The majority of new bookings come from our SaaS offerings and are thus recurring in nature, with recurring revenue accounting for more than 88.8% and 89.5% of our total revenue for the three and six months ended June 30, 2024, respectively.

offerings and are thus recurring in nature, with recurring revenue accounting for more than 90.2% of our total revenue for the three months ended March 31, 2024, respectively.

We generally price our SaaS and license agreements at individually negotiated rates with occasional discounts, typically for multi-solution sales or to help districts meet their budget and funding timing constraints. Contracts are typically sold on a three-year basis with one-year rolling renewals and annual price escalators. We typically invoice our customers annually, in advance, for subscription fees and maintenance, while a portion of customers are billed semiannually, quarterly, or monthly. SaaS revenues are recognized over time to appropriately reflect progress towards full completion of our performance obligations.

To help customers go live with our software and achieve success, we offer professional services such as professional consultation, implementation, and training services as requested by our customers. Revenue from these services is primarily classified as non-recurring revenue, with the exception of the revenue from recurring managed services, which is classified as recurring revenue. For our SaaS business, these services generally take less than one year to complete.

Key Factors Affecting Our Performance

Our historical financial performance has been, and we expect our financial performance in the future to be, impacted by the following key factors:

Cross-Selling New Solutions to Existing Customers

Many of our customers begin their journey with us by using only a small portion of our overall platform. As customers begin to appreciate the benefits of an integrated software platform across student data, classroom learning, back-office functions, and talent management, they increase the number of solutions they buy from us over time. Our future revenue growth is dependent upon our ability to expand our customers’ use of our platform, and our go-to-market efforts are designed to drive cross-sell growth. Our ability to increase sales to existing customers will depend on a number of factors, including the level of satisfaction with our solutions, competition, pricing, economic conditions, and spending by customers on our solutions. We have adopted a customer success strategy and implemented processes across our customer base to drive revenue retention and expansion, which combined with our cross-selling success has resulted in a Net Revenue Retention Rate (as defined below) of 107.0% as of March 31, 2024, compared to 109.1% as of March 31, 2023.

Attracting New Customers in North America

We believe there is significant opportunity to increase market adoption of our platformed products by new customers. Our ability to attract new customers is dependent upon a number of factors including the features and pricing of our competitors’ offerings, the effectiveness of our marketing efforts, the effectiveness of our channel partners in selling, the marketing and deploying of our software solutions, and the growth in demand of cloud-based technology solutions in K-12 education. We intend to expand our customer base by continuing to make significant and targeted investments in direct sales and marketing to attract new customers and to drive broader awareness of our software solutions.

pricing of our competitors’ offerings, the effectiveness of our marketing efforts, the effectiveness of our channel partners in selling, the marketing and deploying of our software solutions, and the growth in demand of cloud-based technology solutions in K-12 education. We intend to expand our customer base by continuing to make significant and targeted investments in direct sales and marketing to attract new customers and to drive broader awareness of our software solutions.

Continuing to Expand Into Complementary Adjacencies

From 2015 to ~~March~~June 3130, 2024, we have acquired and successfully integrated 19 complementary businesses to enhance our software and technology capabilities. We have a demonstrated track record of driving growth from our acquired assets and delivering positive return on investment. Acquisitions are core to our strategy, and we intend to continue pursuing targeted acquisitions that further complement our portfolio of technology offerings or provide us access to new markets. This adjacency expansion strategy is complementary to our cross-selling strategy, as it both introduces acquired solutions to our existing customers and introduces a base of net new customers to whom we may sell our other solutions. Additionally, we intend to continue providing adjacent solutions by other means, which may include organic development and strategic partnerships. Our position as the leading system of record, engagement, and intelligence provides us with a unique vantage point to identify the most critical needs of our customers and most innovative companies within the K-12 education ecosystem. We will continue to carefully evaluate acquisition, partnership, and development opportunities to assess whether they meet our strategic objectives and enhance our platform.

Sustaining Innovation and Technology Leadership

Our success is dependent on our ability to sustain innovation and technology leadership to maintain our competitive advantage. We believe that we have built a highly differentiated platform that will position us to further extend the adoption of our solutions. We intend to continue to invest in building additional solutions, features, and functionality that expand our capabilities and facilitate the extension of our platform to new adjacencies. We also intend to continue to evaluate strategic acquisitions and investments in businesses and technologies to drive solutions and market expansion. Our future success is dependent on our ability to successfully develop, market, and sell existing and new solutions to both new and existing customers.

Expanding Internationally

We believe there is a significant opportunity to expand usage of our platform outside of North America. As of ~~March~~June 3130, 2024, PowerSchool served customers in over 90 countries outside of the U.S. and Canada, primarily American international schools. On August 9, 2023, we acquired all of the equity interest of Neverskip, a leading provider of school solutions software in India. We plan to continue to make product, personnel, partnership, and acquisition-related investments to expand geographically. Although these investments may adversely affect our operating results in the near-term, we believe that they will contribute to our long-term growth.

Currency Fluctuations

Our operating expenses are denominated in the currencies of the countries in which our operations are located, which are primarily in the U.S., Canada, and India. Our consolidated results of operations and cash flows are, therefore, subject to fluctuations due to changes in foreign currency exchange rates and may be adversely affected in the future due to changes in foreign exchange rates. Fluctuations in foreign currency exchange rates did not have a significant impact on our reported results in the ~~three~~six months ended ~~March~~June 3130, 2024.

High Interest Rates

As a result of increased federal funds interest rates, the interest rate applicable to our First Lien loan increased from 78.705% as of ~~March~~June 3130, 2023 to 8.333% as of ~~March~~June 3130, 2024. As a result, our net interest expense has increased from $1430.01 million for the ~~three~~six months ended ~~March~~June 3130, 2023 to $2144.02 million for the ~~three~~six months ended ~~March~~June 3130, 2024. If interest rates continue to increase, our cost of debt may also continue to increase and we may have to divert available cash to the payment of interest.

Inflation and other Macroeconomic Events

Adverse macroeconomic conditions, including but not limited to the current inflationary environment and slower economic growth and risk of recession could impact our business and customer spending. Certain of our customers may also be negatively impacted by these events. While inflation may impact our net revenues and costs of revenues, we believe the effects of inflation, if any, on our results of operations and financial condition have not been material. However, there can be no assurance that our results of operations and financial condition will not be materially impacted by inflation in the future.

~~Key Business Metrics~~32

Inmay ~~addition~~also tobe negatively impacted by these events. While inflation may impact our ~~GAAP~~net ~~financial~~revenues ~~information~~and costs of revenues, we ~~review~~believe athe ~~number~~effects of ~~operating~~inflation, if any, on our results of operations and financial ~~metrics,~~condition ~~including~~have ~~the~~not ~~following~~been ~~key~~material. ~~metrics~~However, tothere ~~evaluate~~can ~~our~~be ~~business,~~no ~~measure~~assurance that our ~~performance,~~results ~~identify~~of ~~trends~~operations ~~affecting~~and ~~our~~financial ~~business,~~condition ~~formulate~~will ~~business~~not ~~plans,~~be ~~and~~materially ~~make~~impacted ~~strategic~~by ~~decisions~~inflation in the future.

Annualized Recurring Revenue (“ARR”)

ARR represents the annualized value of all recurring contracts as of the end of the period. ARR mitigates fluctuations due to seasonality, contract term, one-time discounts given to help customers meet their budgetary and cash flow needs, and the sales mix for recurring and non-recurring revenue. We record ARR at the time a customer purchases a new product or renews an existing product, and at a value that represents the contracted annual recurring revenue value excluding any granted one-time discounts. ARR does not have any standardized meaning and is therefore unlikely to be comparable to similarly titled measures presented by other companies. ARR should be viewed independently of revenue and deferred revenue and is not intended to be combined with or to replace

either of those items. ARR is not a forecast, and the active contracts at the end of a reporting period used in calculating ARR may or may not be extended or renewed by our customers.

We closed the three months ended March 31, 2024 with ARR of $720.3 million compared to $612.3 million as of March 31, 2023.

Net Revenue Retention Rate (“NRR”)

We believe that our ability to retain and grow recurring revenues from our existing customers over time strengthens the stability and predictability of our revenue base and is reflective of the value we deliver to them through upselling and cross selling our solution portfolio. Typically, our customer agreements are sold on a three-year basis with one-year rolling renewals and annual price escalators. These annual renewal processes provide us an additional opportunity to upsell and cross sell additional products. We assess our performance in this area using a metric we refer to as Net Revenue Retention Rate (“NRR”). For the purposes of calculating NRR, we exclude from our calculation any changes in ARR attributable to Intersect customers, as this product is sold through our channel partnership with EAB Global, Inc. and is pursuant to annual revenue minimums, therefore the business will not be managed based on our NRR. We calculate our dollar-based NRR as of the end of a reporting period as follows:

•Numerator. We measure ARR from renewed and new sale opportunities booked as of the last day of the current reporting period from customers with associated ARR as of the last day of the prior year comparative reporting period.

•Denominator. We measure, as of the last day of the current reporting period, the last twelve months of ARR that was scheduled for renewal.

The quotient obtained from this calculation is our dollar-based net revenue retention rate. Our NRR provides insight into the impact on current year recurring revenues of expanding adoption of our solutions by our existing customers during the current period. Our NRR is subject to adjustments for acquisitions, consolidations, spin-offs and other market activity.

We closed the twelve-month period ended March 31, 2024 with a Net Revenue Retention Rate of 107.0%, compared to 109.1% as of March 31, 2023. The most significant drivers of changes in our Net Revenue Retention Rate each year have historically been our propensity to secure contract renewals with annual price escalators and sell new solutions or additional licenses to our existing customer base. Our use of Net Revenue Retention Rate has limitations as an analytical metric, and investors should not consider it in isolation. Net Revenue Retention Rate does not have any standardized meaning and is therefore unlikely to be comparable to similarly titled measures presented by other companies.

Components of Results of Operations

Revenues

We recognize revenue under Accounting Standard Codification Topic 606 (“ASC 606”) and 340-40 (“ASC 340-40”). Under ASC 606, we recognize revenue when our customer obtains control of goods or services in an amount that reflects the consideration that we expect to receive in exchange for those goods or services. See “Critical Accounting Estimates.”

Subscriptions and Support. Subscriptions and support revenues consist primarily of fees from customers accessing our solutions. Revenue is recognized ratably over the contract period as the software is provided.

Service. Service revenues consist primarily of fees related to new product implementations, customizations, and customer training. Revenue is recognized when the services are rendered.

License and other. License and other revenues consist primarily of one-time perpetual license and partner royalty fees or reseller arrangements. Revenue is recognized at a point in time when the customer is able to use and benefit from the software.

Cost of Revenue

Cost of revenue consists primarily of employee compensation costs for employees associated with supporting our subscription, support, professional services arrangements and customer success, as well as certain third-party expenses. Employee compensation and related costs include cash compensation and benefits to employees, costs of third-party contractors, and associated overhead costs. Third-party expenses consist of cloud infrastructure costs, third-party licensing costs, and other expenses directly associated with our customer support. We expect cost of revenues to increase in absolute dollars as we continue to hire personnel, to provide hosting services, technical support, customer success, and consulting services to our growing customer base.

Operating Expenses

Research and development. Research and development expenses consist primarily of personnel costs. Research and development expenses also include costs associated with contractors and consultants, equipment, and software to support our development and quality assurance teams and overhead expenses. We will continue to invest in innovation and offer our customers new solutions to enhance our existing platform.

Selling, general, and administrative. Selling, general, and administrative expenses consist primarily of employee compensation and benefits costs for corporate personnel, such as those in our executive, legal, human resource, facilities, accounting and finance, and information technology departments. In addition, general and administrative expenses include third-party professional fees and principal stockholder-related costs, as well as all other supporting corporate expenses not allocated to other departments. We expect our selling, general, and administrative expenses to increase on an absolute dollar basis as our business grows.

Acquisition costs. Acquisition costs consist primarily of third-party professional fees incurred in conjunction with acquisitions.

Interest Expense, Net

Interest expense, net consists primarily of interest payments on our outstanding borrowings under our First Lien and Revolving Credit Agreement, interest income from our investments, and amortization of debt issuance costs.

Other Expense (Income), Net

Other expense, net primarily consists of foreign currency gains/losses.

3033

Results of Operations

The following table sets forth our consolidated statement of operations and comprehensive loss for the periods indicated:

	Three Months EndedMarch 31,
	Three Months Ended June 30,				Six Months EndedJune 30,
	2024		2023		2024		2023
	~~(in thousands)~~				(in thousands)
Consolidated Statement of Operations and Comprehensive Loss:
Revenue:
Subscriptions and support	$	~~166~~170,~~927~~129	$	~~141~~146,~~073~~503	$	337,056	$	287,576
Service	1619,~~686~~321		1620,~~233~~197		36,007		36,429
License and other	12,~~354~~142		27,~~148~~197		3,496		9,345
Total revenue	~~184~~191,~~967~~592		~~159~~173,~~454~~897		376,559		333,350
Cost of revenue:
Subscriptions and support	4647,~~327~~768		3836,~~194~~781		94,095		74,975
Service	1312,~~383~~210		1415,~~323~~123		25,593		29,446
License and other	1,~~071~~148		~~951~~1,017		2,219		1,968
Depreciation and amortization	1918,~~080~~705		16,~~021~~108		37,785		32,129
Total cost of revenue	79,~~861~~831		69,~~489~~029		159,692		138,518
Gross profit	~~105~~111,~~106~~761		89104,~~965~~868		216,867		194,832
Operating expenses:
Research and development	3130,~~651~~616		25,~~421~~862		62,267		51,283
Selling, general, and administrative	5271,~~432~~621		4953,~~558~~129		124,052		102,687
Acquisition costs	~~753~~276		—		1,029		—
Depreciation and amortization	17,~~349~~344		15,~~771~~764		34,693		31,535
Total operating expenses	~~102~~119,~~185~~857		9094,~~750~~755		222,041		185,505
Income (loss) from operations	2(8,~~921~~096)		~~(785)~~10,113		(5,174)		9,327
Interest expense—net	2023,~~996~~193		1416,~~029~~101		44,189		30,130
Other expenses (income)—net	(99853)		4431		(950)		74
Loss before income taxes	(1730,~~976~~436)		(146,~~858~~019)		(48,413)		(20,877)
Income tax expense (benefit)	(4,~~872~~732)		(451,724)		139		(1,769)
Net loss	(2225,~~848~~704)		(144,~~813~~295)		(48,552)		(19,108)
Less: Net loss attributable to non-controlling interest	(35,~~290~~693)		(21,~~960~~100)		(8,983)		(4,060)
Net loss attributable to PowerSchool Holdings, Inc.	~~(19,558)~~$	(20,011)	~~(11,853)~~$	(3,195)	$	(39,569)	$	(15,048)
Other comprehensive income (loss), net of taxes:
Foreign currency translation	(~~734~~304)		8621		(1,038)		108
Change in unrealized loss on investments	—		3—		—		3
Total other comprehensive income (loss)	(~~734~~304)		8921		(1,038)		111
Less: Other comprehensive income (loss) attributable to non-controlling interest	$(56)	~~(136)~~	$	174	(192)		$	21
Comprehensive loss attributable to PowerSchool Holdings, Inc.	$	(20,~~156~~259)	$	(113,~~781~~178)	$	(40,415)	$	(14,958)

3134

The following table sets forth our consolidated statement of operations and comprehensive loss expressed as a percentage of total revenue for the periods indicated:

	Three Months EndedMarch 31,
	Three Months Ended June 30,				Six Months EndedJune 30,
	2024		2023		2024		2023
Consolidated Statement of Operations and Comprehensive Loss:
Revenue:
Subscriptions and support	9089	%	8884	%	89	%	86	%
Service	910		1112		10		11
License and other	1		14		1		3
Total revenue	100		100		100		100
Cost of revenue:
Subscriptions and support	25		2421		25		22
Service	76		9		7		9
License and other	1		<1		1		1
Depreciation and amortization	10		109		10		10
Total cost of revenue	4342		4440		42		42
Gross profit	5758		5660		58		58
Operating expenses:
Research and development	1716		1615		17		15
Selling, general, and administrative	2837		31		33		31
Acquisition costs	<1		—		<1		—
Depreciation and amortization	9		109		9		9
Total operating expenses	5563		5754		59		56
Income (loss) from operations	2(4)		~~(<1)~~6		(<1)		3
Interest expense—net	1112		9		12		9
Other expenses (income)—net	(<1)		(<1)		(<1)		(<1)
Loss before income taxes	(1016)		(93)		(13)		(6)
Income tax expense (benefit)	3(2)		(<1)		<1		(1)
Net loss	(1213)		(92)		(13)		(6)
Less: Net loss attributable to non-controlling interest	(23)		(21)		(2)		(1)
Net loss attributable to PowerSchool Holdings, Inc.	(1110)		(72)		(11)		(5)
Other comprehensive income (loss), net of taxes:	—		—
Foreign currency translation	(<1)		<1		(<1)		<1
Change in unrealized loss on investments	—		<1—		—		<1
Total other comprehensive income (loss)	(<1)		<1		(<1)		<1
Less: Other comprehensive income (loss) attributable to non-controlling interest	(<1)		<1		(<1)		<1
Comprehensive loss attributable to PowerSchool Holdings, Inc.	(11)	%	(72)	%	(11)	%	(4)	%

3235

Discussion of Results of Operations

Revenues

	Three Months Ended March 31,
	Three Months Ended June 30,								Six Months Ended June 30,
	2024		2023		$ Change		% Change		2024		2023		$ Change		% Change
	(in thousands)								(in thousands)
Revenue:
Subscriptions and support	$	~~166~~170,~~927~~129	$	~~141~~146,~~073~~503	$	2523,~~854~~626	1816	%	$	337,056	$	287,576	$	49,480	17	%
Service	1619,~~686~~321		1620,~~233~~197		~~453~~(876)		3(4)	%	36,007		36,429		(422)		(1)	%
License and other	12,~~354~~142		27,~~148~~197		(~~794~~5,055)		(3770)	%	3,496		9,345		(5,849)		(63)	%
Total revenue	$	~~184~~191,~~967~~592	$	~~159~~173,~~454~~897	$	2517,~~513~~695	1610	%	$	376,559	$	333,350	$	43,209	13	%

The period-over-period increase in subscriptions and support ~~and service~~ revenue for the three and six months ended ~~March~~June 3130, 2024 was driven by increased sales of our solutions to new customers, and by cross-selling and upselling to existing customers. The period-over-period ~~change~~decrease in license and other revenue was driven primarily by the variability caused by the point in time nature of this revenue stream, which drove larger recognition of revenue in the prior period; we expect this variability to continue in future quarters.

Total Cost of Revenue

	Three Months Ended March 31,
	Three Months Ended June 30,								Six Months Ended June 30,
	2024		2023		$ Change		% Change		2024		2023		$ Change		% Change
	(in thousands)								(in thousands)
Cost of Revenue:
Subscriptions and support	$	4647,~~327~~768	$	3836,~~194~~781	$	810,~~133~~987	2130	%	$	94,095	$	74,975	$	19,120	26	%
Service	1312,~~383~~210		1415,~~323~~123		(~~940~~2,913)		(719)	%	25,593		29,446		(3,853)		(13)	%
License and other	1,~~071~~148		~~951~~1,017		~~120~~131		13	%	2,219		1,968		251		13	%
Depreciation and amortization	1918,~~080~~705		16,~~021~~108		32,~~059~~597		1916	%	37,785		32,129		5,656		18	%
Total cost of revenue	$	79,~~861~~831	$	69,~~489~~029	$	10,~~372~~802	1516	%	$	159,692	$	138,518	$	21,174	15	%

The period-over-period increase in subscriptions and support cost of revenue for the three months ended ~~March~~June 3130, 2024 was primarily driven by an increase of $3.63 million ~~increase~~ in cloud hosting expenses, $14.0 million ~~increase~~in ~~personnel~~third-~~related~~ party costs, and $1.06 million ~~increase~~ in ~~restructuring~~personnel-related ~~expenses~~costs. The period-over-period ~~decrease~~increase in ~~service~~subscriptions ~~cost~~and support costs of revenue for the six months ended June 30, 2024 was primarily ~~attributable~~driven toby aan increase of $16.09 million ~~decrease~~ in ~~personnel-related~~cloud ~~costs.~~hosting ~~The~~expenses, ~~period-over-period~~$4.1 ~~increase~~million in ~~license~~third-party ~~and~~costs, ~~other~~$2.7 ~~cost~~million ofin ~~revenue~~personnel-related ~~was~~costs, ~~primarily~~and ~~attributable~~$0.6 tomillion ~~an increase~~ in ~~royalty~~restructuring ~~costs~~expense.

The period-over-period ~~increase~~decrease in ~~depreciation~~service cost of revenue for the three months ended June 30, 2024 was primarily attributable to a decrease of $2.0 million in personnel-related costs and ~~amortization~~$0.3 million in share based compensation. The period-over-period decrease in service cost of revenue for the ~~three~~six months ended ~~March~~June 3130, 2024 was ~~driven~~primarily byattributable ~~amortization~~to a decrease of $2.3 million in personnel-related tocosts ~~increased~~and ~~investment~~$0.6 million in ~~innovation~~share ~~projects~~based compensation.

33The period-over-period increase in depreciation and amortization cost of revenue for the three and six months June 30, 2024 was driven by amortization related to increased investment in innovation projects.

Operating Expenses

	Three Months Ended March 31,
	Three Months Ended June 30,								Six Months Ended June 30,
	2024		2023		$ Change		% Change		2024		2023		$ Change		% Change
	(in thousands)								(in thousands)
Operating expenses:
Research and development	$	3130,~~651~~616	$	25,~~421~~862	$	64,~~230~~754	2518	%	$	62,267	$	51,283	$	10,984	21	%
Selling, general, and administrative	5271,~~432~~621		4953,~~558~~129		218,~~874~~492		635	%	124,052		102,687		21,365		21	%
Acquisition costs	~~753~~276		—		~~753~~276		N/M		1,029		—		1,029		N/M
Depreciation and amortization	17,~~349~~344		15,~~771~~764		1,~~578~~580		10	%	34,693		31,535		3,158		10	%
Total operating expenses	$	~~102~~119,~~185~~857	$	9094,~~750~~755	~~11,435~~$	25,102	1326	%	$	222,041	$	185,505	$	36,536	20	%

Research and development. The period-over-period increase in research and development expense for the three months ended ~~March~~June 3130, 2024 was primarily attributable to an increase of $32.0 million in personnel-related costs, $20.36 million ~~increase~~in hardware and software support costs, $0.4 million in ~~restructuring~~share ~~expenses~~based compensation, and $0.43 million in restructuring expense. The period-over-period increase in research and development expense for the six months ended June 30, 2024 was primarily attributable to an increase of $5.0 million in personnel-related costs, $1.0 million in hardware and software support costs, $0.5 million in share based compensation, and $1.7 million in restructuring expense.

Selling, general, and administrative. The period-over-period increase in selling, general and administrative expense for the three months ended ~~March~~June 3130, 2024 was primarily attributable to an increase of $417.1 million in ~~personnel~~restructuring ~~related~~expense ~~expenses~~which ~~and~~primarily consists of costs associated with the Bain transaction, $1.13 million ~~increase~~in professional services fees, $1.1 million in ~~third-party~~share ~~commissions~~based compensation, and $0.67 million ~~increase~~ in ~~software~~personnel-related ~~support~~ costs. The increase was partially offset by ~~decreases~~a decrease of $10.7 million in bad debt expenses and $0.6 million in insurance costs. The period-over-period increase in selling, general and administrative expense for the six months ended June 30, 2024 was primarily attributable to an increase of $017.57 million in restructuring expenses which primarily consists of costs associated with the Bain transaction, $4.7 million in personnel-related costs, $1.3 million in professional services fees, and $1.0 million in share based compensation.5 The increase was partially offset by a decrease of $2.3 million in bad debt expense and $1.1 million in insurance costs.

Acquisition costs. The period-over-period increase in acquisition costs for the three and six months ended ~~March~~June 3130, 2024 was attributable to the ~~acquisition~~acquisitions of Allovue.

Depreciation and amortization. The period-over-period increase in depreciation and amortization expense for the three and six months ended ~~March~~June 3130, 2024 was primarily due to a higher balance of intangible assets from the acquisitions of Neverskip, SchoolMessenger, and Allovue.

Interest Expense

	Three Months Ended March 31,
	Three Months Ended June 30,								Six Months Ended June 30,
	2024		2023		$ Change		% Change		2024		2023		$ Change		% Change
	(in thousands)								(in thousands)
Interest Expense	$	2023,~~996~~193	$	1416,~~029~~101	$	67,~~967~~092	5044	%	$	44,189	$	30,130	$	14,059	47	%

The period-over-period increase in interest expense for the three and six months ended ~~March~~June 3130, 2024 was driven by a higher average debt balance throughout the period and higher interest rates on our First Lien Term Loan.

~~Other Income (Expense) - Net~~37

	Three Months Ended March 31,
	2024		2023		$ Change		% Change
	(in thousands)
Other (income) expense - net	$	(99)	$	44	$	(143)	(325)	%

Other Expenses (Income) - Net

The period-over-period fluctuation in other (income) expense - net for the three months ended March 31, 2024 was primarily due to the fluctuation on the remeasurement of foreign denominated cash and accounts receivable balances.


	Three Months Ended June 30,								Six Months Ended June 30,
	2024		2023		$ Change		% Change		2024		2023		$ Change		% Change
									(in thousands)
Other expense (income) - net	$	(853)	$	31	$	(884)	(2852)	%	$	(950)	$	74	$	(1,024)	(1384)	%

34The period-over-period fluctuation in other expenses (income) - net for the three and six months ended June 30, 2024 was primarily due to the fluctuation on the remeasurement of foreign denominated cash and accounts receivable balances.

Income Tax Expense (Benefit)

	Three Months Ended March 31,
	Three Months Ended June 30,								Six Months Ended June 30,
	2024		2023		$ Change		% Change		2024		2023		$ Change		% Change
	(in thousands)								(in thousands)
Income tax expense (benefit)	$	(4,~~872~~732)	$	(451,724)	$	4(3,~~917~~008)	~~N/M~~174	%	$	139	$	(1,769)	$	1,908	(108)	%

The period-over-period fluctuation in income tax expense (benefit) for the three months ended ~~March~~June 3130, 2024 was primarily due to an increase in the amount of pre-tax book loss. The period-over-period fluctuation in income tax expense (benefit) for the six months ended June 30, 2024 was primarily due to the increase in pre-tax book loss and deferred tax expense recognized due to the tax restructuring completed as part of the ~~Allovue~~ acquisition of Allovue.

Liquidity and Capital Resources

General

PowerSchool Holdings, Inc. is a holding company with no operations of our own and, as such, we depend on distributions by our current and future subsidiaries, including Holdings LLC, for cash to fund all of our operations and expenses. The terms of the agreements governing our senior secured credit facilities contain certain negative covenants prohibiting certain of our subsidiaries from making cash dividends or distributions to us or to Holdings LLC unless certain financial tests are met. We currently anticipate that such restrictions will not impact our ability to meet our cash obligations.

As of ~~March~~June 3130, 2024, our principal sources of liquidity were cash and cash equivalents totaling $1720.47 million, which were held for working capital purposes, as well as the available balance of our Revolving Credit Agreement, described below. Our cash equivalents were comprised of bank deposits and are generally held with large, diverse financial institutions worldwide with high investment-grade credit ratings or financial institutions that meet investment-grade ratings criteria, which we believe mitigates credit risk.

We believe our existing cash and cash equivalents, our Revolving Credit Agreement and cash provided by sales of our solutions and services will be sufficient to meet our working capital and capital expenditure needs beyond the next twelve months. We also expect our operating cash flows to further improve as we increase our operational efficiency and experience economies of scale in the long term.

Our future capital requirements will depend on many factors including our growth rate, the timing and extent of spending to support development efforts, the timing of required TRA payments, the expansion of sales and marketing activities, the introduction of new and enhanced solutions and services offerings, the closing of the Merger, and the continuing market acceptance of our solutions. In the future, we may enter into arrangements to acquire or invest in complementary businesses, services, and technologies, including intellectual property rights.

We may be required to seek additional equity or debt financing in the future. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital or generate cash flows necessary to expand our operations and invest in new technologies, this could reduce our ability to compete successfully and harm our results of operations.

A majority of our customers pay in advance for subscriptions, which is recorded as deferred revenue. Deferred revenue consists of the unearned portion of billed fees for our subscriptions, which is later recognized as revenue in accordance with our revenue recognition policy. As of March 31, 2024, we had deferred revenue of $283.7 million, of which $275.5 million was recorded as a current liability and is expected to be recorded as revenue in the next 12 months, provided all other revenue recognition criteria have been met.38

A majority of our customers pay in advance for subscriptions, which is recorded as deferred revenue. Deferred revenue consists of the unearned portion of billed fees for our subscriptions, which is later recognized as revenue in accordance with our revenue recognition policy. As of June 30, 2024, we had deferred revenue of $213.4 million, of which $206.5 million was recorded as a current liability and is expected to be recorded as revenue in the next 12 months, provided all other revenue recognition criteria have been met.

Credit Facilities

On August 1, 2018, we entered into a First Lien with lending institutions for term loan borrowings. The First Lien also provides for a Revolving Credit Agreement (the “Revolving Credit Agreement”).

On October 12, 2023, the Company further amended the First Lien and Revolving Credit Agreement. The amendment, among other things, refinanced the then outstanding term loans with $837.9 million of new term loans, extended the maturity date on the First Lien from July 31, 2025 to August 1, 2027, extended the maturity date of the Revolving Credit Agreement from May 2, 2025 to May 2, 2027, and increased the borrowing capacity on the Revolving Credit Agreement from $289.0 million to $400.0 million. Following the amendment, the First Lien is repayable in quarterly payments of $2.1 million.

As of ~~March~~June 3130, 2024, there were $~~835~~833.87 million of term loans outstanding under the First Lien and $~~125~~187.0 million under the Revolving Credit Agreement.

Borrowings under the First Lien bear interest at the SOFR, as administered by the Federal Reserve Bank of New York, plus the initial margin 3.25% per annum. As of ~~March~~June 3130, 2024, the interest rate on the First Lien was 8.3133%.

Other Contractual Obligations

Our material cash requirements from other known contractual and other obligations primarily consist of contractual obligations under operating leases for office space, data facilities, cloud hosting arrangements and other services we purchase as part of our normal operations.

See Note 12. Commitments and Contingencies of the condensed consolidated financial statements in this Quarterly Report on Form 10-Q.

Cash Flows

The following table presents a summary of our consolidated cash flows from operating, investing, and financing activities for the periods presented:

	Three Months Ended March 31,
	Six Months Ended June 30,
	2024		2023
	(in thousands)
Net cash used in operating activities	$	(89137,~~685~~039)	$	(6092,~~027~~741)
Net cash used in investing activities	(5464,~~705~~044)		(1020,~~032~~886)
Net cash provided by (used in) financing activities	122,595		(3,222)
Net cash provided by financing activities	182,448		4,700
Effect of foreign exchange rate on cash and cash equivalents	~~166~~259		73(161)
Net (decrease) increase in cash and cash equivalents and restricted cash	$	(21,629)	$	(73,208)
Net decrease in cash and cash equivalents and restricted cash	$	(18,376)	$	(109,088)
Cash and cash equivalents and restricted cash at beginning of period	39,554		137,981
Cash, cash equivalents, and restricted cash at beginning of period	39,554		137,982
Cash and cash equivalents and restricted cash at end of period	$	17,925	$	64,773
Cash, cash equivalents, and restricted cash at end of period	$	21,178	$	28,894

Operating Activities

Net cash used in operating activities of $89137.70 million for the ~~three~~six months ended ~~March~~June 3130, 2024 was primarily related to our net loss of $2248.86 million, adjusted for non-cash charges of $50110.8 million, and net cash outflows of $~~117~~199.73 million, resulting from changes in our operating assets and liabilities, net of acquisitions. Non-cash charges primarily consisted of depreciation and amortization of $3672.45 million, share-based compensation expense of $1433.2 million, ~~and~~ $13.50 million from the amortization of debt issuance costs, and $2.3 million from the write-off of right-of-use assets. The main drivers of net cash outflows from changes in operating assets and liabilities were decreases in deferred revenue of $~~102~~173.92 million primarily due to the seasonality of our billing cycle.

Net cash used in operating activities of $6092.07 million for the ~~three~~six months ended ~~March~~June 3130, 2023 was primarily related to our net loss of $1419.81 million, adjusted for non-cash charges of $4899.09 million, and net cash outflows of $93173.25 million resulting from change in our operating assets and liabilities, net of acquisitions. Non-cash charges primarily consisted of depreciation and amortization of $63.7 million and share-based compensation expense of $32.0 million. The main drivers of the net cash inflows from changes in operating assets and liabilities were increases in deferred revenue of $124.0 million due to increases in sales and accounts receivable of $25.2 million due to the seasonality of our billing cycle.

primarily consisted of depreciation and amortization of $31.8 million and share-based compensation expense of $14.5 million. The main drivers of the net cash inflows from changes in operating assets and liabilities were increases in deferred revenue of $73.7 million due to increases in sales and accounts receivable of $8.4 million due to the seasonality of our billing cycle.

Investing Activities

Net cash used in investing activities of $5464.70 million for the ~~three~~six months ended ~~March~~June 3130, 2024 was primarily related to the net cash paid for our acquisition of Allovue for $36.1 million, investment in capitalized product development costs of $918.01 million, purchases of property and equipment of $35.90 million, and payment of acquisition-related deferred consideration of $5.8 million.

Net cash used in investing activities of $1020.09 million for the ~~three~~six months ended ~~March~~June 3130, 2023 was primarily related to our investment in capitalized product development costs of $919.79 million and purchases of property and equipment of $0.49 million.

Financing Activities

Net cash provided by financing activities of $~~122~~182.64 million for the ~~three~~six months ended ~~March~~June 3130, 2024 was primarily related to the net proceeds from our Revolving Credit Agreement of $~~125~~187.0 million offset by scheduled repayment of our First Lien debt of $24.~~1 million, the payment of deferred consideration of $0.~~2 million~~, and the payment of taxes related to the net settlement of equity awards of $0~~.~~1 million.~~

Net cash ~~used~~provided inby financing activities of $34.27 million for the ~~three~~six months ended ~~March~~June 3130, 2023 was primarily related toproceeds from our Revolving Credit Agreement of $10.0 million, offset by payment of taxes related to the net settlement of equity awards of $1.34 million and scheduled repayment of our First Lien debt of $13.9 million.

Indemnification Agreements

In the ordinary course of business, we enter into agreements of varying scope and terms pursuant to which we agree to indemnify customers, including, but not limited to, losses arising out of the breach of such agreements, services to be provided by us, or from intellectual property infringement claims made by third parties. In addition, in connection with the completion of our IPO, we entered into indemnification agreements with our directors and certain officers and employees that will require us, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers, or employees. No demands have been made upon us to provide indemnification under such agreements and there are no claims that we are aware of that could have a material effect on our consolidated balance sheets, consolidated statements of operations and comprehensive loss, or consolidated statements of cash flows.

Critical Accounting Estimates

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, revenue and expenses, and related disclosures of contingent assets and liabilities, as applicable, at the date of our consolidated financial ~~statements. Actual results may differ from these estimates under different assumptions or conditions, impacting our reported results of operations and financial condition.~~

statements. Actual results may differ from these estimates under different assumptions or conditions, impacting our reported results of operations and financial condition.

Certain accounting policies involve significant judgments and assumptions by management, which have a material impact on the carrying value of assets and liabilities and the recognition of income and expenses. Management considers these accounting policies to be critical accounting policies. The estimates and assumptions used by management are based on historical experience and other factors, which are believed to be reasonable under the circumstances. The critical accounting estimates, assumptions, and judgements that we believe to have the most significant impact on our consolidated financial statements are revenue recognition, accounts receivable, capitalized product development costs, goodwill and intangible assets, business combinations, share-based compensation, tax receivable agreement liability, and income taxes.

There have been no material changes to our critical accounting policies and estimates as described in our Annual Report on Form 10-K for the year ended December 31, 2023.

Recent Accounting Pronouncements

For a description of our recently adopted accounting pronouncements and recently issued accounting standards not yet adopted, see Note 2. Summary of Significant Accounting Policies to the condensed consolidated financial statements.

Non-GAAP Financial Measures

In addition to our results determined in accordance with GAAP, we believe the following non-GAAP measures are useful in evaluating our operating performance. We believe that non-GAAP financial information, when taken collectively, may be helpful to investors because it provides consistency and comparability with past financial performance and assists in comparisons with other companies, some of which use similar non-GAAP financial information to supplement their GAAP results. The non-GAAP financial information is presented for analytical and supplemental informational purposes only, and should not be considered in isolation or as a substitute for financial information presented in accordance with GAAP, and may be different from similarly-titled non-GAAP measures used by other companies. A reconciliation is provided below for each non-GAAP financial measure to the most directly comparable financial measure stated in accordance with GAAP. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures.

These non-GAAP financial measures have their limitations as an analytical tool, and you should not consider them in isolation, or as a substitute for analysis of our results as reported under GAAP. Because of these limitations, these non-GAAP financial measures should not be considered as a replacement for their respective comparable financial measures, as determined by GAAP, or as a measure of our profitability or liquidity. We compensate for these limitations by relying primarily on our GAAP results and using non-GAAP measures only for supplemental purposes.

Adjusted Gross Profit

Adjusted Gross Profit is a supplemental measure of operating performance that is not made under GAAP and that does not represent, and should not be considered as, an alternative to gross profit, as determined in accordance with GAAP. We define Adjusted Gross Profit as gross profit, adjusted for depreciation, share-based compensation expense and the related employer payroll tax, restructuring and acquisition-related expenses, amortization of acquired intangible assets, and capitalized product development costs. We use Adjusted Gross Profit to understand and evaluate our core operating performance and trends, to prepare and approve our annual budget, and to develop short-term and long-term operating plans. We believe that Adjusted Gross Profit is a useful measure to us and to our investors because it provides consistency and comparability with our past financial performance and between fiscal periods, as the metric generally eliminates the effects of the variability of depreciation, share-based compensation, restructuring expense, acquisition-related expenses, and amortization of acquired intangibles and capitalized product development costs from period to period, which may fluctuate for reasons unrelated to overall operating performance. We believe that the use of this measure enables us to more effectively evaluate our performance period-over-period and relative to our competitors.

Adjusted EBITDA

Adjusted EBITDA is a supplemental measure of operating performance that is not made under GAAP and that does not represent, and should not be considered as, an alternative to net income (loss), as determined by GAAP. We define Adjusted EBITDA as net income (loss) adjusted for net interest expense, depreciation and amortization, provision for (benefit from) income tax, share-based compensation expense and the related employer payroll tax, management fees, restructuring expense, acquisition-related expense, ~~and~~ nonrecurring litigation expense, and other one-time costs. We use Adjusted EBITDA to understand and evaluate our core operating performance and trends and to develop short-term and long-term operating plans. We believe that Adjusted EBITDA facilitates comparison of our operating performance on a consistent basis between periods and, when viewed in combination with our results prepared in accordance with GAAP, helps provide a broader picture of factors and trends affecting our results of operations.

Free Cash Flow

Free Cash Flow is a supplemental measure of liquidity that is not made under GAAP and does not represent, and should not be considered as, an alternative to cash flow from operations, as determined by GAAP. We define Free Cash Flow as net cash provided by operating activities less cash used for purchases of property and equipment and capitalized product development costs plus proceeds from the sale of property and equipment. We believe that Free Cash Flow is a useful indicator of liquidity that provides information to management and investors about the amount of cash generated by our operations inclusive of that used for investments in property and equipment and capitalized product development costs.

Reconciliation of Gross profit to Adjusted gross profit

	Three Months Ended March 31,
	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands except percentages)	2024			2023			2024			2023
Gross profit	$	~~105~~111,~~106~~761		$	89104,~~965~~868		$	216,867		$	194,832
Depreciation	~~151~~61			~~252~~163			212			415
Share-based compensation (1)	23,~~273~~015			2,~~458~~654			5,288			5,112
Restructuring(2)	~~1,279~~(62)			13524			1,216			537
Acquisition-related expense(3)	~~173~~158			8747			334			134
Amortization	18,~~929~~644			15,~~769~~945			37,573			31,715
Adjusted Gross Profit	$	~~127~~133,~~911~~577		$	~~108~~124,~~544~~201		$	261,490		$	232,745
Gross Profit Margin(4)	5658.83		%	5660.43		%	57.6		%	58.4		%
Adjusted Gross Profit Margin(5)	69.27		%	6871.14		%	69.4		%	69.8		%

(1) Refers to expenses flowing through gross profit associated with share-based compensation.

(2) Refers to expenses flowing through gross profit related to migration of customers from legacy to core products, and severance expense related to offshoring activities and executive departures.

(3) Refers to expenses flowing through gross profit incurred to execute and integrate acquisitions, including retention awards and severance for acquired employees.

(4) Represents gross profit as a percentage of revenue.

(5) Represents Adjusted Gross Profit as a percentage of revenue.

Reconciliation of Net Loss to Adjusted EBITDA

	Three Months Ended March 31,
	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands)	2024			2023			2024			2023
Net loss	$	(2225,~~848~~704)		$	(144,~~813~~295)		$	(48,552)		$	(19,108)
Add:
Amortization	35,~~492~~162			3031,~~873~~050			70,654			61,924
Depreciation	~~937~~887			~~918~~822			1,824			1,741
Interest expense - net(1)	2023,~~996~~193			1416,~~029~~101			44,189			30,130
Income tax expense (benefit)	(4,~~872~~732)			(451,724)			139			(1,769)
Share-based compensation	1420,~~685~~014			1517,~~481~~910			34,699			33,391
Management fees(2)	8081			6395			161			158
Restructuring(3)	317,~~858~~228			~~1,366~~917			21,086			2,283
Acquisition-related expense(4)	31,~~202~~226			~~1,534~~314			4,428			1,848
Adjusted EBITDA	$	61,274		$	49,406
Change in tax reserves(5)	(798)			—			(798)			—
Net loss margin(5)	(12.4)		%	(9.3)		%
Adjusted EBITDA	$	66,557		$	61,190		$	127,830		$	110,598
Adjusted EBITDA margin(6)	33.1		%	31.0		%
Net loss margin(6)	(13.4)		%	(2.5)		%	(12.9)		%	(5.7)		%
Adjusted EBITDA margin(7)	34.7		%	35.2		%	33.9		%	33.2		%

(1) Interest expense, net of interest income.

(2) Refers to expense associated with collaboration with our principal stockholders and their internal consulting groups.

(3) Refers to costs incurred related to migration of customers from legacy to core products, remaining lease obligations for abandoned facilities, severance expense related to offshoring activities, facility closures, loss on modification of debt, nonrecurring litigation expense,executive departures, and ~~executive~~costs ~~departures~~related to the Bain transaction.

(4) Refers to direct transaction and debt-related fees reflected in our acquisition costs line item of our consolidated income statements and incremental acquisition-related costs that are incurred to perform diligence, execute and integrate acquisitions, including retention awards and severance for acquired employees, and other transaction and integration expenses. Also, refers to the fair value adjustments recorded to the contingent consideration liability related to the acquisitions of Kinvolved, ~~Chalk,~~ and ~~SchoolMessenger~~Chalk. These incremental costs are embedded in our research and development, selling, general and administrative, and cost of revenue line items.

(5) ~~Represents~~Refers ~~net~~to ~~loss~~income asrecognized adue ~~percentage~~to ofthe ~~revenue~~change in tax reserves.

(6) Represents ~~Adjusted~~net ~~EBITDA~~loss as a percentage of revenue.

~~Reconciliation~~(7) Represents ofAdjusted ~~Net~~EBITDA ~~Cash~~as ~~Used~~a inpercentage ~~Operating~~of ~~Activities~~revenue. ~~to Free Cash Flow~~

	Three Months Ended March 31,
(in thousands)	2024		2023
Net cash used in operating activities	$	(89,685)	$	(60,027)
Less:
Purchases of property and equipment	(3,887)		(356)
Capitalized product development costs	(8,956)		(9,676)
Free Cash Flow	$	(102,528)	$	(70,059)

40Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow


	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2024		2023		2024		2023
Net cash used in operating activities	$	(47,355)	$	(32,711)	$	(137,039)	$	(92,741)
Proceeds from sale of property and equipment	839		—		839		—
Purchases of property and equipment	(1,064)		(582)		(4,951)		(938)
Capitalized product development costs	(9,114)		(10,272)		(18,070)		(19,948)
Free Cash Flow	$	(56,694)	$	(43,565)	$	(159,221)	$	(113,627)

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains “forward-looking statements” that are subject to risks and uncertainties. All statements other than statements of historical fact included in this Quarterly Report on Form 10-Q are forward-looking statements. Forward-looking statements give our current expectations relating to our financial condition, results of operations, plans, objectives, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “anticipate,” “estimate,” “expect,” “project,” “plan,” “intend,” “believe,” “may,” “will,” “should,” “can have,” “likely” and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events. For example, all statements we make relating to our estimated costs, expenditures, cash flows, growth rates and financial results, our plans and objectives for future operations, growth or initiatives, strategies, the expected outcome, timing, impact or benefit of the Merger, or the expected outcome or impact of pending or threatened litigation are forward-looking statements. All forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we expected, including:

•uncertainties associated with the proposed Merger;

•risk associated with the failure to complete the Merger and its effect on our business and the market price of our shares of Class A common stock;

•limitations on our ability to pursue alternatives to the Merger under the agreement;

•restrictions imposed on the conduct of our business during the term of the proposed Merger;

•potential litigation instituted against us or our directors challenging the proposed Merger;

•our history of cumulative losses and expectation that we will not be profitable for the foreseeable future;

•risks associated with failing to continue our recent growth rates;

•the competitiveness of the market in which we operate;

•risks and uncertainties associated with potential acquisitions and divestitures;

•our ability to retain, hire and integrate skilled personnel including our senior management team;

•our ability to develop, introduce and market new and enhanced versions of our solutions to meet customer needs and expectations;

•our use of AI and our management thereof;

•the impact of adverse general and industry-specific economic and market conditions;

•risks related to the unavailability of additional U.S. federal government stimulus packages focused on educational initiatives following the COVID-19 pandemic;

•the impact of inflation, rising interest rates, and global conflicts, including disruptions in European economies as a result of the war in Ukraine; the Israel-Hamas war, the relationship between China and Taiwan, and ongoing trade disputes between the United States and China;

•risks to our revenue from changes in the spending policies or budget priorities for government funding of K-12 schools;

•risks related to the procurement process and budget decision by government entities;

•our ability to correctly estimate market opportunity and forecast market growth;

•our ability to successfully develop new solutions or materially enhance current solutions through our research and development efforts;

•risks caused by delays in upturns or downturns being reflected in our financial position and results of operations;

•the length and variability of our sales cycles;

•risks related to negotiating leverage and the demands of our large customers;

•our ability to change our pricing models, if necessary to compete successfully;

•our ability to acquire new accounts and successfully retain existing accounts;

•our ability to maintain, enhance and protect our brand;

•the impact of any catastrophic events;

•the seasonality of our sales and customer growth;

•the effects of interruptions or delays in services provided by our data centers or other third parties;

•risks associated with lawsuits by third parties for alleged infringement, misappropriation or other violation of their intellectual property and proprietary rights;

•our ability to obtain, maintain, protect and enforce intellectual property protection for our current and future solutions;

•the impact of potential information technology or data security breaches or other cyber-attacks or other disruptions;

•the risks associated with indemnity provisions in some of our agreements;

•the risks related to our use of open source software in certain of our solutions;

•the impact of interruptions or performance problems associated with our technology or infrastructure;

•the impact of real or perceived errors, failures or bugs in our solutions;

•risks related to incorrect or improper use of our solutions or our failure to properly train customers on how to utilize our solutions;

•our ability to offer high-quality support;

•our ability to predict and respond to rapidly evolving technological trends and our customers’ changing needs;

•the fact that our activities are and will continue to be subject to extensive government regulation;

•our ability to comply with privacy laws and regulations;

•risks related to changes in tax laws;

•the impact of export and import control laws and regulations;

•risks relating to non-compliance with anti-corruption, anti-bribery and similar laws;

•risks related to future litigation;

•changes in privacy laws and regulations applicable to our business;

•our ability to comply with legal requirements, contractual obligations and industry standards relating to security, data protection and privacy;

•risks to our reputation and of liability from a failure to comply with a variety of complex procurement rules and regulation;

•our reliance on third-party software and intellectual property licenses;

•our ability to develop and maintain proper and effective internal control over financial reporting;

•the impact of variation in our quarterly operating results on the trading price of our stock; and

•other factors disclosed in Part I, Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2023.

We derive many of our forward-looking statements from our operating budgets and forecasts, which are based on many detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results. All written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by these cautionary statements as well as other cautionary statements that are made from time to time in our other SEC filings and public communications. You should evaluate all forward-looking statements made in this Quarterly Report on Form 10-Q in the context of these risks and uncertainties.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.

We caution you that the important factors referenced above may not contain all of the factors that are important to you. In addition, we cannot assure you that we will realize the results or developments we expect or anticipate or, even if substantially realized, that they will result in the consequences or affect us or our operations in the way we expect. The forward-looking statements included in this Quarterly Report on Form 10-Q are made only as of the date hereof. We undertake no obligation to update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily a result of exposure due to potential changes in inflation or interest rates. We do not hold financial instruments for trading purposes.

Foreign Currency Exchange Risk

The functional currencies of our foreign subsidiaries are the respective local currencies. Most of our sales are denominated in U.S. dollars, and therefore our revenue is not currently subject to significant foreign currency risk. Our operating expenses are denominated in the currencies of the countries in which our operations are located, which are primarily in the U.S., Canada, India, and United Arab Emirates. Our consolidated results of operations and cash flows are, therefore, subject to fluctuations due to changes in foreign currency exchange rates and may be adversely affected in the future due to changes in foreign exchange rates. To date, we have not entered into any hedging arrangements with respect to foreign currency risk or other derivative financial instruments. During the ~~three~~six months ended ~~March~~June 3130, 2024, a hypothetical 10% change in foreign currency exchange rates applicable to our business would not have had a material impact on our consolidated financial statements.

Interest Rate Risk

As of ~~March~~June 3130, 2024, our primary market risk exposure is changing interest rates. Interest rate risk is highly sensitive due to many factors, including U.S. monetary and tax policies, U.S. and international economic factors, and other factors beyond our control. The First Lien and Revolving Credit Agreement carry interest at SOFR, as administered by the Federal Reserve Bank of New York, plus the applicable margin. The applicable margin for the First Lien is initially 3.25% per annum with a 0.25% step down based on the First Lien Net Leverage Ratio. The applicable margin for the Revolving Credit Agreement is initially 3.25% per annum with up to a 0.50% step down based on the First Lien Net Leverage Ratio.

As of ~~March~~June 3130, 2024, we had an outstanding debt balance of $~~835~~833.87 million related to our First Lien and $~~125~~187.0 million on our Revolving Credit Agreement. Based on the amount outstanding, a 100-basis point increase or decrease in market interest rates over a twelve- month period would result in a change to interest expense of approximately $910.62 million.

To date, we have not entered into any hedging arrangements with respect to interest rate risk or other derivative financial instruments.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) as of ~~March~~June 3130, 2024. Our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of ~~March~~June 3130, 2024.

Changes to our Internal Controls over Financial Reporting

There have been no changes in internal control over financial reporting during the quarter ended ~~March~~June 3130, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Part II - Other Information

Item 1. Legal Proceedings

Item 1A. Risk Factors

~~There~~The ~~have been no material changes with respect to the~~ risk factors disclosed in Part I, Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2023, in addition to the other information set forth in this Quarterly Report on Form 10-Q, could materially affect our business, financial condition or future results.

Uncertainties associated with the Merger could adversely affect our business, results of operations and financial condition.

On June 6, 2024, the Company entered into the Merger Agreement with Parent and Merger Sub, pursuant to which Merger Sub will merge with and into the Company, with the Company continuing as the surviving corporation and a wholly owned subsidiary of Parent. Completion of the Merger is subject to various customary closing conditions. The failure to satisfy these closing conditions could jeopardize or delay the consummation of the Merger. The parties to the Merger Agreement may not receive the necessary approvals for the transaction or receive them within the expected timeframe. In addition, the Merger may fail to close for other reasons.

The announcement and pendency of the Merger, as well as any delays in the expected timeframe, could cause disruption in and create uncertainties, which could have an adverse effect on our business, results of operations and financial condition, regardless of whether the Merger is completed. These risks include, but are not limited to:

•an adverse effect on our relationship with vendors, customers and employees, including if our vendors, customers or others attempt to negotiate changes in existing business relationships, consider entering into business relationships with parties other than us, delay or defer decisions concerning their business with us, or terminate their existing business relationships with us during the pendency of the Merger;

•a diversion of a significant amount of management time and resources toward the completion of the Merger;

•being subject to certain restrictions on the conduct of our business;

•possibly foregoing certain business opportunities that we might otherwise pursue absent the pending Merger; and

•difficulties attracting and retaining key employees.

Failure to complete the Merger could adversely affect our business and the market price of our shares of Class A common stock.

The closing of the Merger may not occur on the expected timeline or at all. The Merger Agreement contains certain termination rights for us and Parent, including (i) if the Merger is not consummated on or before the Termination Date, (ii) if the other party breaches or fails to perform any of its representations, warranties, covenants or other agreements contained in the Merger Agreement, which breach or failure to perform would result in a failure of a condition precedent to consummation of the Merger and cannot be cured or, if capable of being cured, has not been cured within a specified timeframe, or (iii) if any statue, law or regulation has been enacted, entered or enforced that prohibits or makes illegal the Merger or the transactions contemplated by the Merger Agreement. If the Merger Agreement is terminated and the Merger is not consummated, the price of our Class A common stock may decline, we may experience negative reactions from the financial markets, including negative stock price impacts or we may experience negative reactions from our business partners and you may not recover your investment or receive a price for your shares similar to what has been offered pursuant to the Merger.

In addition, if the Merger Agreement is validly terminated by Parent under the circumstances set forth in the Merger Agreement, the Company will be required to pay Parent a termination fee equal to $134,650,000. If the Company is required to pay this termination fee, such fee, together with costs incurred to execute the Merger Agreement and pursue the Merger, could have a material adverse effect on the Company’s financial condition and results of operations.

The Merger Agreement contains provisions that limit our ability to pursue alternatives to the Merger.

Under the Merger Agreement, we are restricted from soliciting, initiating, proposing or inducing any proposal or offer that constitutes or could reasonably be expected to lead to an alternative acquisition proposal. These provisions could discourage a third party that may have an interest in acquiring all or a significant part of our business from considering or proposing an acquisition, even if such third party were prepared to pay consideration with a higher value than the value of the consideration provided for in the Merger Agreement.

We are subject to certain restrictions on the conduct of our business under the terms of the Merger Agreement.

Under the terms of the Merger Agreement, we have agreed to certain restrictions on the operations of our business. We have agreed to limit the conduct of our business to those actions undertaken in the ordinary course of business and to refrain from, among other things, incurring debt; entering into, adopting, amending, modifying or terminating any Employee Plans (as defined in the Merger Agreement); increasing the compensation of any director, officer or employee with an annual base compensation above $250,000 or hiring or terminating any employee with annual base compensation above $250,000 (other than for cause); settling, releasing, waiving or compromising certain legal proceedings; materially changing our methods, principles or practices of financial accounting; and incurring certain capital expenditures. Because of these restrictions, we may be prevented from undertaking certain actions with respect to the conduct of our business that we might otherwise have taken if not for the Merger Agreement.

We and our directors may be subject to litigation challenging the Merger, and an unfavorable judgment or ruling in any such lawsuits could prevent or delay the consummation of the Merger and/or result in substantial costs.

Lawsuits related to the Merger may be filed against us and our respective affiliates, directors and officers. We have received demand letters from three purported stockholders of the Company pursuant to Section 220 of the Delaware General Corporation Law, seeking to inspect books and records of the Company relating to, among other things, the Merger. Additionally, the Company has received demand letters from two purported stockholders of the Company, which generally demand the disclosure of certain additional information that was allegedly omitted from the Preliminary Information Statement on Schedule 14C filed in connection with the Merger. It is possible that additional demands may be made and/or that additional complaints may be filed pursuant to Section 220 of the Delaware General Corporation Law and/or that complaints may be filed by our stockholders challenging the Merger. The outcome of any such demands and complaints and any litigation ensuing from such demands and complaints cannot be assured, including the amount of fees and costs associated with defending these claims or any other liabilities that may be incurred in connection therewith. Whether or not any plaintiff’s claim is successful, this type of

litigation can result in significant costs and divert our attention and resources from the Merger and ongoing business activities, which could adversely affect our operations. In addition, if dismissals are not obtained or a settlement is not reached, these lawsuits could prevent or delay completion of the Merger.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

~~Insider Trading Arrangements~~None.

On February 29, 2024, Shivani Stumpf, the Company’s Chief Product and Innovation Officer, adopted a 10b5-1 trading plan, which is designed to be in effect until December 31, 2024. The aggregate number of shares of Class A common stock to be sold pursuant to Ms. Stumpf’s 10b5-1 plan is 52,558. Ms. Stumpf’s 10b5-1 plan is intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act.50

On March 12, 2024, Devendra Singh, the Company’s Chief Technology Officer, adopted a 10b5-1 trading plan, which is designed to be in effect until March 31, 2025. The aggregate number of shares of Class A common stock to be sold pursuant to Mr. Singh’s 10b5-1 plan is 117,800. Mr. Singh’s 10b5-1 plan is intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act.

Item 6. Exhibits

ExhibitNumber						Description
3.1						Amended and Restated Certificate of Incorporation of PowerSchool Holdings, Inc., dated July 27, 2021 (incorporated by reference to Exhibit 3.2 of PowerSchool Holdings, Inc.’s Current Report on Form 8-K filed on July 30, 2021).
3.2						Amended and Restated Bylaws of PowerSchool Holdings, Inc., dated July 27, 2021 (incorporated by reference to Exhibit 3.4 of PowerSchool Holdings, Inc.’s Current Report on Form 8-K filed on July 30, 2021).
10.1						~~Form~~Agreement and Plan of ~~Market~~Merger, ~~Share~~by ~~Award~~and ~~Agreement~~among PowerSchool Holdings, Inc., BCPE Polymath Buyer, Inc., and BCPE Polymath Merger Sub, Inc., dated June 6, 2024 (incorporated by reference to Exhibit 2.1 of PowerSchool Holdings, Inc.’s Current Report on Form 8-K filed on June 10, 2024).
10.2						~~Form~~Support and Rollover Agreement, by and among PowerSchool Holdings, Inc., BCPE Polymath Buyer, Inc., and BCPE Polymath Merger Sub, Inc., Vista Consulting Group, LLC, the stockholder parties thereto and the other signatory parties thereto, dated June 6, 2024. (incorporated by reference to Exhibit 10.1 of ~~Performance~~PowerSchool ~~Share~~Holdings, ~~Award~~Inc.’s ~~Agreement~~Current Report on Form 8-K filed on June 10, 2024).
10.3						Support and Rollover Agreement, by and among PowerSchool Holdings, Inc., BCPE Polymath Buyer, Inc., and BCPE Polymath Merger Sub, Inc., Onex Partners Manager LP., the stockholder parties thereto and the other signatory parties thereto, dated June 6, 2024. (incorporated by reference to Exhibit 10.2 of PowerSchool Holdings, Inc.’s Current Report on Form 8-K filed on June 10, 2024).
10.4						Amendment No. 1 to the Tax Receivable Agreement, by and among PowerSchool Holdings, Inc. and the TRA Holders parties thereto, dated June 6, 2024. (incorporated by reference to Exhibit 10.3 of PowerSchool Holdings, Inc.’s Current Report on Form 8-K filed on June 10, 2024).
31.1						Certification of Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a) or 15(d)-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2						Certification of Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a) or 15(d)- 14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*						Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS						Inline XBRL Instance Document
101.SCH						Inline XBRL Taxonomy Extension Schema Document
101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF						Inline XBRL Extension Definition
101.LAB						Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE						Inline XBRL Taxonomy Extension Presentation Linkbase Document
104						Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

*The certifications attached as Exhibit 32.1 that accompany this Quarterly Report on Form 10-Q, are deemed furnished and not filed with the SEC.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		PowerSchool Holdings, Inc.
Date: May 7, 2024	By:	/s/ Eric Shander
Date: August 9, 2024	By:	/s/ Eric Shander
	Name:	Eric Shander
	Title:	President & Chief Financial Officer
		(Authorized Signatory and Principal Financial and Accounting Officer)

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