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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 June 30, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from      to
Commission file number 001-40684
PowerSchool Holdings, Inc.
(Exact name of registrant as specified in its charter)
Delaware85-4166024
(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 of
Securities to be Registered
Trading Symbol
Name of each exchange on which registered
Class A Common Stock, par value $0.0001 per share
PWSCThe 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 and posted 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 and post 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. (Check one):
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 Act).
Yes No

The registrant had 198,413,787 shares of common stock outstanding as of July 31, 2022.



TABLE OF CONTENTS

3



Part I - Financial Information
Item 1. - Condensed Consolidated Financial Statements (Unaudited)
POWERSCHOOL HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
As of June 30, 2022As of December 31, 2021
Assets
Current Assets:
Cash and cash equivalents$15,445 $86,479 
Accounts receivable—net of allowance of $3,325 and $4,964 respectively
56,559 48,403 
Prepaid expenses and other current assets35,207 38,423 
Total current assets107,211 173,305 
Property and equipment - net7,084 15,676 
Operating lease right-of-use assets9,255  
Capitalized product development costs - net92,526 80,611 
Goodwill2,487,004 2,454,692 
Intangible assets - net768,377 804,909 
Other assets31,004 27,489 
Total assets$3,502,461 $3,556,682 
Liabilities and Stockholders'/Members’ Equity
Current Liabilities:
Accounts payable$6,766 $12,449 
Accrued expenses65,595 71,167 
Operating lease liabilities, current7,094  
Deferred revenue, current172,992 294,276 
Revolving credit facility70,000  
Current portion of long-term debt7,750 7,750 
Total current liabilities330,197 385,642 
Noncurrent Liabilities:
Other liabilities2,326 7,423 
Operating lease liabilities—net of current9,284  
Deferred taxes297,584 295,959 
Tax Receivable Agreement liability400,022 404,394 
Deferred revenue—net of current5,032 6,881 
Long-term debt, net731,013 733,425 
Total liabilities1,775,458 1,833,724 
Commitments and contingencies (Note 13)
Stockholders'/Members’ Equity:
Class A common stock, $0.0001 par value per share, 500,000,000 shares authorized, 158,266,304 shares issued and outstanding as of June 30, 2022. 158,034,497 shares issued and outstanding as of December 31, 2021
1616 
4


Class B common stock, $0.0001 par value per share, 300,000,000 shares authorized, 39,928,472 shares issued and outstanding as of June 30, 2022. 39,928,472 shares issued and outstanding as of December 31, 2021
44 
Additional paid-in capital1,422,401 1,399,967 
Accumulated other comprehensive loss (1,219)(216)
Accumulated deficit(183,101)(165,026)
Total stockholders'/members’ equity attributable to PowerSchool Holdings, Inc. 1,238,101 1,234,745 
Non-controlling interest488,902 488,213 
Total stockholders'/members’ equity 1,727,003 1,722,958 
Total liabilities and stockholders'/members' equity$3,502,461 $3,556,682 
See notes to condensed consolidated financial statements.

5


POWERSCHOOL HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(in thousands except for per-share data)

Three Months Ended
June 30,
Six Months Ended
June 30,
2022202120222021
Revenue:
Subscriptions and support$135,010 $121,763 $264,775 $224,854 
Service19,119 16,083 35,182 29,036 
License and other3,462 7,557 7,227 9,660 
Total revenue157,591 145,403 307,184 263,550 
Cost of revenue:
Subscriptions and support37,260 33,632 75,294 62,664 
Service15,737 12,795 30,734 23,489 
License and other717 531 1,703 929 
Depreciation and amortization14,271 12,846 28,230 24,602 
Total cost of revenue67,985 59,804 135,961 111,684 
Gross profit89,606 85,599 171,223 151,866 
Operating expenses:
Research and development26,088 21,929 52,706 40,474 
Selling, general, and administrative47,484 30,653 87,587 55,984 
Acquisition costs1,043 177 2,618 5,780 
Depreciation and amortization16,137 16,154 32,095 30,713 
Total operating expenses90,752 68,913 175,006 132,951 
Income (loss) from operations(1,146)16,686 (3,783)18,915 
Interest expense—Net8,743 21,297 15,765 38,559 
Other expenses (income) —Net(498)(376)(576)(233)
Loss before income taxes(9,391)(4,235)(18,972)(19,411)
Income tax expense (benefit)(2,933)(1,690)1,605 (17,349)
Net loss(6,458)(2,545)(20,577)(2,062)
Less: Net loss attributable to non-controlling interest(1,933) (3,940) 
Net loss attributable to PowerSchool Holdings, Inc. (4,525)(2,545)(16,637)(2,062)
Net loss attributable to the PowerSchool Holdings, Inc. per share of Class A common stock - basic and diluted$(0.03)$ $(0.11)$ 
Weighted average shares of Class A common stock outstanding - basic and diluted158,229,171  158,171,056  
Other comprehensive income (loss) —Foreign currency translation345 (381)(125)(228)
Total other comprehensive income (loss)345 (381)(125)(228)
Less: comprehensive income (loss) attributable to non-controlling interest$70 $ $(25)$ 
Comprehensive loss attributable to PowerSchool Holdings, Inc. $(4,250)$(2,926)$(16,737)$(2,290)
See notes to condensed consolidated financial statements
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POWERSCHOOL HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’/ MEMBERS’ EQUITY
(in thousands)
Members investmentClass A common stockClass B common stockAdditional paid-in capitalAccumulated other comprehensive loss Accumulated deficitNon-controlling interestTotal
SharesAmountSharesAmount
Balance—December 31, 2021$— 158,034 $16 39,928 $4 $1,399,967 $(216)$(165,026)$488,213 $1,722,958 
Issuance of common stock upon vesting of Restricted Stock Awards— 116 — — — — — — — — 
Share-based compensation— — — — — 12,209 — — — 12,209 
Foreign currency translation— — — — — — (469)— — (469)
Allocation of equity to noncontrolling interests— — — — — (2,024)— — 2,024  
Deferred offering costs— — — — — (295)— — — (295)
Adjustments to deferred taxes— — — — — 212 — — — 212 
Cumulative effect adjustment upon adoption of ASC 842 (note 2)— — — — — — — (1,437)— (1,437)
Net loss— — — — — — — (12,113)(2,007)(14,120)
Balance—March 31, 2022$— 158,150 $16 39,928 $4 $1,410,069 $(685)$(178,576)$488,230 $1,719,058 
Issuance of common stock upon vesting of Restricted Stock Awards— 116 — — — — — — — — 
Share-based compensation— — — — — 14,937 — — — 14,937 
Foreign currency translation— — — — — — (534)— — (534)
Allocation of equity to noncontrolling interests— — — — — (2,605)— — 2,605 — 
Net loss— — — — — — — (4,525)(1,933)(6,458)
Balance—June 30, 2022$ 158,266 $16 39,928 $4 $1,422,401 $(1,219)$(183,101)$488,902 $1,727,003 

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Members investmentClass A common stockClass B common stockAdditional paid-in capitalAccumulated other comprehensive (loss) incomeAccumulated deficitNon-controlling interestTotal
SharesAmountSharesAmount
Balance—December 31, 2020$1,855,730 — $— — $— $— $441 $(178,298)$— $1,677,873 
Repurchase of management incentive units(448)— — — — — — 2 — (446)
Management incentive unit-based compensation1,364 — — — — — — — — 1,364 
Foreign currency translation— — — — — — 153 — — 153 
Net income— — — — — — — 483 — 483 
Balance—March 31, 2021$1,856,646 — $— — $— $— $594 $(177,813)$— $1,679,427 
Repurchase of management incentive units — — — — — — — —  
Management incentive unit-based compensation1,373 — — — — — — — — 1,373 
Foreign currency translation— — — — — — (381)— — (381)
Net loss— — — — — — — (2,545)— (2,545)
Balance—June 30, 2021$1,858,019 — $— — $— $— $213 $(180,358)$— $1,677,874 

See notes to condensed consolidated financial statements.
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POWERSCHOOL HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Six Months Ended
June 30,
20222021
Cash flows from operating activities:
Net loss$(20,577)$(2,062)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization60,307 61,778 
Share-based compensation25,610 2,737 
Write-off of right-of-use assets and property and equipment8,597  
Change in fair value of acquisition-related contingent consideration(5,926) 
Other804 (258)
Changes in operating assets and liabilities — net of effects of acquisitions:
Accounts receivables(6,643)(735)
Prepaid expenses and other current assets3,315 4,266 
Other assets(3,815)(10,535)
Accounts payable(5,112)1,669 
Accrued expenses(7,854)1,800 
Other liabilities(5,217)(43)
Deferred taxes1,579 (18,892)
Deferred revenue(125,387)(90,659)
Net cash used in operating activities(80,319)(50,934)
Cash flows from investing activities:
Purchases of property and equipment(2,201)(2,172)
Proceeds from sale of property and equipment 13 
Investment in capitalized product development costs(20,927)(19,137)
Acquisitions—net of cash acquired(31,155)(318,824)
Partial payment of acquisition-related contingent consideration(1,392) 
Net cash used in investing activities(55,675)(340,120)
Cash flows from financing activities:
Proceeds from Revolving Credit Agreement70,000 55,000 
Proceeds from Bridge Loan 315,200 
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Six Months Ended
June 30,
20222021
Repayment of Incremental Facility (350)
Repayment of First Lien Debt(3,875)(3,875)
Payments for repurchase of management incentive units (448)
Payments of deferred offering costs(295)(2,655)
Payment of debt issuance costs (2,100)
Repayment of capital leases (108)
Net cash provided by financing activities65,830 360,664 
Effect of foreign exchange rate changes on cash(872)189 
Net decrease in cash, cash equivalents, and restricted cash(71,036)(30,201)
Cash, cash equivalents, and restricted cash—Beginning of period86,991 53,246 
Cash, cash equivalents, and restricted cash—End of period$15,955 $23,045 
Supplemental disclosures of cash flow information:
Cash paid for interest$14,172 $31,645 
Cash paid for income taxes1,106 2,998 
Supplemental disclosures of noncash investing and financing activities:
Property and equipment additions in accounts payable and accrued liabilities$88 $184 
Capitalized interest related to investment in capitalized product development costs243 165 
Reconciliation of cash, cash equivalents, and restricted cash
Cash and cash equivalents$15,445 $22,533 
Restricted cash, included in other current assets510 512 
Total cash, cash equivalents, and restricted cash$15,955 $23,045 
See notes to condensed consolidated financial statements.
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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 related organizational transactions in order to carry on the business of PowerSchool Holdings LLC (“Holdings LLC”), formerly known as Severin Holdings, LLC.

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 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, and India.

Initial Public Offering and Organizational Transactions

On July 30, 2021, the Company completed the IPO of 39,473,685 shares of Class A common stock, par value $0.0001 per share, at an offering price of $18.00 per share, and received $673.2 million in IPO proceeds, net of $37.3 million in underwriting discounts and commissions. On August 10, 2021, the underwriters for the IPO exercised the option to purchase an additional 5,447,581 shares of Class A common stock and the Company received an additional $92.9 million in the proceeds upon exercise of this option, net of $5.1 million in underwriting discounts and commissions.

In connection with the consummation of the IPO, the Company consummated the following transactions (the “Organizational Transactions”):

Holdings LLC's operating agreement was amended and restated to (i) 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 (ii) appoint the Company as the sole managing member of Holdings LLC.

The Company engaged in a series of transactions that resulted in holders of time-based management incentive units (“MIUs”) in Topco LLC receiving, in the aggregate, (i) 1,208,770 shares of unrestricted Class A common stock and (ii) 657,661 restricted shares of Class A common stock in exchange for vested and unvested time-based MIUs, respectively. The restricted shares are subject to the same time-based vesting schedule as prior to the exchange. The existing performance-based MIUs were exchanged for LLC Units. In connection with the Organizational Transactions, the vesting conditions on these MIUs were modified as described in Note 15.

The Company issued 39,928,472 shares of Class B common stock, par value $0.0001 per share, which provides no economic rights, to Topco LLC, on a one-to-one basis with the number of LLC Units (other than Participation Units) the Company owns, for nominal consideration.

Certain entities (the “Blocker Entities”) through which the funds associated with Onex Partners Manager LP (“Onex”) and Vista Equity Partners, known collectively as the “Principal Stockholders”, held their ownership interests in Topco LLC, engaged in a series of transactions (the “Blocker Contributions”) that resulted in each of the Blocker Entities becoming subsidiaries of the Company.

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The Company entered into an exchange agreement (the “Exchange Agreement”) with Topco LLC pursuant to which 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 (based on the price of the Class A common stock in such public offering or private sale). Participation Units may be exchanged for a number of shares of Class A common stock equal to the then current value of a share of Class A common stock less the applicable participation threshold multiplied by the number of Participation Units being exchanged, divided by the then current value of Class A common stock.

The Company entered into a tax receivable agreement (“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.

The Company’s corporate structure following the IPO is commonly referred to as an “Up-C” structure, which is commonly used by partnerships and limited liability companies when they undertake an initial public offering of their business. The Up-C structure, together with the TRA, allows the owners of Holdings LLC at the time of the IPO to continue to realize tax benefits associated with owning interests in an entity that is treated as a partnership, or “pass-through” entity, for income tax purposes following the IPO. One of these benefits is that future taxable income of Holdings LLC that is allocated to such owners will be taxed on a flow-through basis and therefore will not be subject to corporate taxes at the entity level. Additionally, because the LLC Units that the owners at the time of the IPO will continue to hold are exchangeable for shares of Class A common stock or, at the Company’s option, for cash, the Up-C structure also provides the owners of Holdings LLC at the time of the IPO potential liquidity that holders of non-publicly traded limited liability companies are not typically afforded.


2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying interim condensed consolidated balance sheets as of June 30, 2022 and December 31, 2021, the interim condensed consolidated statements of operations and comprehensive loss and stockholders’/members’ equity for the three and six months ended June 30, 2022 and 2021, and cash flows for the six months ended June 30, 2022 and 2021, 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 condensed or omitted certain footnotes or other financial information that are normally required by GAAP for annual financial statements.
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 June 30, 2022, the results of operations for the three and six months ended June 30, 2022 and 2021 and cash flows for the six months ended June 30, 2022 and 2021. These adjustments consist of normal and recurring items. The results of operations for the three and six months ended June 30, 2022 and cash flows for the six months ended June 30, 2022 are not necessarily indicative of the results expected for the year ending December 31, 2022 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.
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
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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; and
the incremental borrowing rate (“IBR”) to measure the present value of operating lease right-of-use (“ROU”) assets and liabilities.
Actual results could differ from those estimates under different assumptions or conditions including, but not limited to, the continued uncertainty surrounding the rapidly changing market and economic conditions due to the novel Coronavirus Disease 2019 (“COVID-19”) pandemic.
Recent Accounting Pronouncements Not Yet Adopted
In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13). This update changes the accounting for recognizing impairments of financial assets, such that credit losses for certain types of financial instruments will be estimated based on expected losses. The update also modifies the impairment models for available-for-sale debt securities and for purchased financial assets with credit deterioration since their origination. ASU 2016-13 is effective for the Company beginning on January 1, 2023. Early adoption is permitted after for periods beginning after December 15, 2018. The Company is currently evaluating the impact of ASU 2016-13 on its consolidated financial statements.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform: Facilitation of the Effects of Reference Rate Reform on Financial Reporting (ASU 2020-04) and subsequently ASU No. 2021-01, Reference Rate Reform (Topic 848) in January 2021. The guidance provides optional expedients and exceptions for applying U.S. GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference London Interbank Offered Rate (“LIBOR”) or other reference rate expected to be discontinued in 2022 or potentially 2023 (pending possible extension). The optional expedients within ASU 2020-04 are effective as of March 12, 2020 through December 31, 2022 and may be applied prospectively. The Company is currently evaluating the impact of adopting the guidance on its consolidated financial statements.
Accounting Pronouncements Recently Adopted
On January 1, 2022, we adopted ASU No. 2016-02, Leases (Topic 842). The ASU requires an entity to recognize ROU assets and lease liabilities on its balance sheet and disclose key information about leasing arrangements. The guidance offers specific accounting guidance for a lessee, lessor, and sale and leaseback transactions. Lessees and lessors are required to disclose qualitative and quantitative information about leasing arrangements to enable a user of the financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. Leases will be classified as either finance or operating, with the classification affecting the pattern of expense recognition in the income statement. The Company elected the optional transition approach to not apply Topic 842 in the comparative periods presented. Further, the Company made the following elections:
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Not to reassess whether existing contracts contain leases, the lease classification for existing leases and whether existing initial direct costs meet the new definition under the available practical expedients allowed by Topic 842.
Not to separate non-lease components from lease components, therefore, it accounts for lease and non-lease components as a single lease component.
The short-term lease recognition exemption for all qualifying leases.
The adoption of this standard resulted in the recognition of total ROU assets of $15.8 million, total lease liabilities of $17.8 million, and a decrease to accumulated deficit of $1.4 million as of the adoption date. The adoption of Topic 842 did not have a material impact to the consolidated statements of operations or statements of cash flows.
On January 1, 2022, we adopted ASU No. 2021-08, Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This update requires contract assets and contract liabilities (i.e., deferred revenue) acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606 (as defined below), as if it had originated the contracts. This accounting pronouncement was applied to the contract assets and liabilities assumed from all of our acquisitions subsequent to the adoption date.
Revenue Recognition
The Company generates revenue from the following sources: (i) software-as-a-service (“SaaS”) offerings in cloud and hosted environments; (ii) professional services including implementation, consulting, customization, training and data migration services; (iii) software license; (iv) software maintenance; and (v) reseller arrangements.
Revenue is recognized when promised goods or services are transferred to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services by following a five-step process:
1.Identify the contract(s) with a customer
2.Identify the performance obligations in the contract
3.Determine the transaction price
4.Allocate the transaction price to the performance obligations in the contract
5.Recognize revenue when (or as) the Company satisfies a performance obligation
The Company identifies enforceable contracts with a customer when the agreement is signed and has determined that contract terms are generally 12 months since customers are generally permitted to terminate after 12 months without incurring a penalty. The Company also evaluates whether any optional periods represent a material right. Some of the Company’s contracts with customers contain multiple performance obligations. For these contracts, the Company accounts for individual performance obligations separately if they are distinct. Transaction price includes both fixed and variable consideration. However, the Company only includes variable consideration in the transaction price to the extent that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. The transaction price is allocated to the separate performance obligations on a relative standalone selling price basis. The Company determines the standalone selling prices based on its overall pricing objectives, taking into consideration market conditions and other factors, including the value of its contracts, the products sold, customer demographics, geographic locations, and the number and types of users within the Company’s contracts. Revenue is recognized net of any taxes collected from customers, which are subsequently remitted to governmental entities (e.g., sales and other indirect taxes).
The following describes the nature of the Company’s primary types of revenue and related revenue recognition policies:
SaaS Offerings
The Company offers SaaS-based solutions to customers that purchase remote access to its software and its functionality. For the Company’s SaaS offerings, the nature of its promise to the customer is to provide continuous access to its application platforms. Accordingly, the Company’s SaaS offerings are generally viewed as stand-ready
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performance obligations comprised of a series of distinct daily services. The Company typically satisfies its SaaS performance obligations over time as the services are provided. A time-elapsed output method is used to measure progress because its efforts are expended evenly throughout the period and customers benefit consistently throughout the contract term. As such, for fixed-fee contracts, revenue is recognized ratably over the contract period and classified as Subscriptions and Support revenue in the consolidated statements of operations and comprehensive loss.
Professional Services
Professional services revenue is comprised of implementation, consulting, customization, training, and data migration services associated with the Company’s SaaS offerings and licensed software. These services are generally recognized at a point in time when services are rendered, with service durations spanning from several weeks to several months, depending on the scope and complexity of the work. Payment terms for professional services may be based on a fixed fee or charged on a time and materials basis.
Professional services are typically considered distinct performance obligations. The Company’s professional services that are billed on a fixed fee basis are typically satisfied as services are rendered, and the Company generally uses efforts expended (labor hours) to measure progress toward completion as this is considered a faithful representation of the transfer of control of the services given the nature of the performance obligation. For professional services that are billed on a time and materials basis, the Company applies the ‘as-invoiced’ practical expedient. Accordingly, revenue is generally recognized based on the amount that the Company has a right to invoice, as this amount corresponds directly with the value to the customer of the Company’s performance completed to date and is classified as Service revenue in the consolidated statements of operations and comprehensive loss.
Software License
The Company licenses software that is distinct and has significant stand-alone functionality (i.e., functional IP). Revenue attributable to such arrangements is typically recognized at the point in time when the customer is able to use and benefit from the software, which is generally upon delivery to the customer or upon the commencement of the renewal term. Software license revenue is classified as License and Other revenue in the consolidated statements of operations and comprehensive loss.
Software Maintenance
Software maintenance is comprised of stand-ready services including technical support services and unspecified software updates and upgrades, which are provided on a when-and-if-available basis. Software maintenance is transferred evenly using a time-elapsed output method over the contract term given it is a stand-ready obligation and there is no discernible pattern of performance. Software maintenance revenue is generally based on fixed fees. Payments are typically required annually in advance of the Company’s performance of the relevant services and recognized as revenue ratably over the maintenance term. This revenue is classified as Subscriptions and Support revenue in the consolidated statements of operations and comprehensive loss.
Reseller Arrangements
The Company has reseller arrangements with several third-party partners. For certain reseller arrangements, the Company does not control the products or services prior to when they are transferred to the customer. Revenue from these arrangements is recorded on a net basis. Reseller revenue is recognized at a point in time when the products or services are resold to the end customer as there are no outstanding performance obligations under these arrangements after the resale. The revenue for these arrangements is classified as License and Other revenue in the consolidated statements of operations and comprehensive loss.
Principal vs. Agent
From time to time the Company enters into arrangements with third parties to offer their products both as integrated into the Company’s offerings as well as add-ons for specific configurations with separate pricing. The Company considers the terms of our arrangements and the economics of the transactions with the third parties to determine the nature of our promise to the customer and whether or not the Company has control of the products or services prior to the transfer to the customer. Where we determine that the nature of our promise is to provide the underlying good or service, we recognize revenue on a gross basis (as the principal) and where the nature of the promise is primarily to facilitate the sale, we recognize revenue on a net basis (as the agent).
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Contract Acquisition Costs
Contract and customer acquisition costs, consisting primarily of sales commissions, are incremental and recoverable costs of obtaining a contract. These costs are capitalized using the portfolio approach and are amortized over the expected period of benefit, which is the estimated life of the technology (determined to be approximately 7 years) provided in the underlying contract. The amortization is determined on a systematic basis that is consistent with the transfer to the customer of the goods or services to which the asset relates. Deferred commissions that will amortize within the next 12-month period are classified as current and included in prepaid expenses and other current assets. The remaining balance is classified as noncurrent and are included in other assets. The Company also applies the practical expedient to expense certain costs as incurred when the amortization period is expected to be one year or less. The practical expedient typically applies to the Company’s professional services offerings.
Deferred Revenue
The timing of revenue recognition may differ from the timing of invoicing to customers. The Company records a receivable when it can contractually invoice a customer and payment will become due solely based on the passage of time, a contract asset when revenue is recognized prior to invoicing and payment is contingent upon transfer of control of another separate performance obligation, or deferred revenue (contract liability) when consideration is received from or amounts are billed to customers which precedes its performance to fully satisfy the associated performance obligation(s).
Deferred revenue primarily results from the revenue from our SaaS offerings that is billed in advance of when such services are provided by the Company. Deferred revenue that will be realized during the succeeding 12-month period is recorded as current, and the remaining deferred revenue is recorded as non-current.
Payment terms and conditions vary by contract type, although terms generally include a requirement of payment within 30 days for net new contracts. For renewal invoices, the due date is generally the start date of the renewal. In instances where the timing of revenue recognition differs from the timing of invoicing, the Company has determined that contracts generally do not include a significant financing component.
Fair Value Measurements
GAAP guidance for fair value measurements clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability.
The Company has established a fair value hierarchy which prioritizes the inputs to the valuation techniques used to measure fair value into three levels. These levels are determined based on the lowest-level input that is significant to the fair value measurement. Levels within the hierarchy are defined as follows:
Level 1—Unadjusted quoted prices in active markets for identical assets and liabilities;
Level 2—Quoted prices for similar assets and liabilities in active markets (other than those included in Level 1) which are observable, either directly or indirectly; and
Level 3—Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
The Company does not have any assets or liabilities that are required to be recorded at fair value on a recurring basis using values determined by Level 2 or Level 3 inputs, with the exception of the contingent consideration liability related to the acquisitions of Kinvolved and Chalk (each as defined below) classified as accrued expenses on the Company’s consolidated balance sheet. The fair value of the contingent consideration liability related to the acquisitions of Kinvolved and Chalk is based on unobservable inputs, including management estimates and assumptions about future revenues and share price, and is, therefore, classified as Level 3. See Note 10 for further information regarding the fair value of the contingent consideration. The recorded amounts of cash and cash equivalents, accounts receivable, other current assets, accounts payable, and accrued expenses and other liabilities approximate the fair values principally because of their short-term nature. Short-term and long-term debt
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are reported at amortized costs in the Company’s consolidated balance sheets. The remaining financial instruments are reported in the Company’s consolidated balance sheets at amounts that approximate current fair values.
Concentration of Credit Risk
The Company’s cash, cash equivalents, and accounts receivable are potentially subject to concentration of credit risk. Cash and cash equivalents are deposited with financial institutions that management believes are creditworthy. As of June 30, 2022 and December 31, 2021, substantially all the Company’s cash has been deposited in low-interest-bearing accounts.
The Company maintains cash balances in excess of the Federal Deposit Insurance Corporation limits at certain financial institutions. We have deposits only with financial institutions believed to have high-quality credit.
The Company maintains an allowance for doubtful accounts receivable based on various factors, including the Company’s review of credit profiles of its customers, contractual terms and conditions, historical payments, and current economic trends. The Company had no customers who accounted for more than 10% of accounts receivable as of June 30, 2022 and December 31, 2021. Since most of these receivables were satisfied in subsequent periods, the Company believes that this does not pose an undue concentration of credit risk on the Company.
The Company had no customers accounting for more than 10% of total revenue for all periods presented.
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.
Accounts Receivable
Accounts receivable primarily includes trade accounts receivable from the Company’s customers. Allowances for doubtful accounts are established based on various factors, including, but not limited to, credit profiles of the Company’s customers, contractual terms and conditions, historical payments, and current economic trends. Accounts receivable are written off or credited on a case-by-case basis, net of any amounts that may be collected.
Property and Equipment
Property and equipment is stated at cost, net of accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of software, equipment, and furniture and fixtures which is generally three to ten years. Buildings are depreciated over a useful life of 20 years or based on the life assigned in the contract. Amortization of leasehold improvements is computed using the shorter of the estimated useful lives or the terms of their respective leases, generally one year to nine years.
Significant improvements that substantially extend the useful lives of assets are capitalized. Expenditures for maintenance and repairs are charged to expense as they are incurred.
Intangible Assets
Intangible assets with estimable useful lives are amortized over their respective estimated useful lives to their estimated residual values using the straight-line method designed to match the amortization to the benefits received.
Leases
Leases arise from contractual obligations that convey the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration. The Company determines whether an arrangement is or contains a lease at inception, based on whether there is an identified asset and whether it controls the use of the identified asset throughout the period of use. At lease commencement date, the Company determines lease classification between finance and operating and recognizes an ROU asset and corresponding lease liability. An ROU asset represents our right to use an underlying asset and a lease liability represents our obligation to make payments during the lease term.

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The lease liability is initially measured as the present value of the remaining lease payments over the lease term. The discount rate used to determine the present value is the Company’s incremental borrowing rate (“IBR”) because the interest rate implicit in the Company’s leases is not readily determinable. The Company estimates its IBR based on the information available at lease commencement date for borrowings with a similar term. The ROU asset is initially measured as the present value of the lease payments, adjusted for initial direct costs, prepaid lease payments to lessors and lease incentives. The operating lease ROU assets and liabilities recognized at January 1, 2022, the adoption date, were based on the present value of lease payments over the remaining lease term as of that date, using the IBR as of that date.

The Company elected the practical expedients to not recognize ROU assets and liabilities for leases with a term of less than twelve months and to not separate nonlease components from the associated lease components. The total consideration includes fixed payments and contractual escalation provisions. The Company is responsible for maintenance, insurance, property taxes and other variable payments, which are expensed as incurred. Some leases include options to renew or terminate. The Company includes the option to renew or terminate in its determination of the lease term when the option is deemed to be reasonably assured to be exercised. The Company accounts for changes in the expected lease term as a modification of the original contract.

Operating leases are classified in "Operating lease right-of-use assets", "Operating lease liabilities, current", and "Operating lease liabilities—net of current" on our condensed consolidated balance sheets.
Capitalized Product Development Costs
The Company’s software and website development costs are accounted for under the guidance for internal use software and website development costs. The costs in the preliminary stages of development are expensed as incurred. Once an application has reached the development stage, if: (1) the costs are direct and incremental and (2) management has determined that it is probable that the project will be completed and the software will be used to perform the function intended, internal and external costs are capitalized until the application is substantially complete and ready for its intended use. The Company makes ongoing evaluations of the recoverability of its capitalized software projects by comparing the net amount capitalized for each product to the estimated net realizable value of the product. If such evaluations indicate that the unamortized software development costs exceed the net realizable value, the Company writes off the amount by which the unamortized software development costs exceed net realizable value. Capitalized software development costs are being amortized to cost of revenue on a straight-line basis over five years. Useful lives are reviewed at least annually and adjusted if appropriate.
Capitalized Cloud Computing Arrangement Implementation Costs
The Company capitalizes certain qualifying costs to implement cloud computing hosting arrangements that are service contracts. Such qualifying costs include direct costs for third-party consulting services, and do not include software maintenance and training costs, which are expensed as incurred. Capitalization of these costs ceases once the software of the hosting arrangement is ready for its intended use. Capitalized costs, net of accumulated amortization, are included in prepaid expenses and non-current assets on the Company’s consolidated balance sheets and amortized primarily to operating expense on a straight-line basis over the expected term of the associated arrangement, including periods that are reasonably expected to be renewed. The amount capitalized is included as a component of net cash used in operating activities in the statements of cash flows.
Capitalized Interest
Interest is capitalized on software products under development. Interest capitalization is based on rates applicable to borrowings outstanding during the period and the balance of qualified assets under development during the period. Capitalized interest is amortized over the useful lives of such assets and the amortization is reported as cost of revenue.
Goodwill Assets
Goodwill is the excess of the purchase price in a business combination over the fair value of identifiable net assets acquired. Goodwill is subject to periodic testing for impairment.
Goodwill is assessed at least annually, but also whenever events or changes in circumstances indicate the carrying values may not be recoverable. Factors that could trigger an impairment review, include (a) significant
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underperformance relative to historical or projected future operating results; (b) significant changes in the manner of or use of the acquired assets or the strategy for the Company’s overall business; and (c) significant negative industry or economic trends.
The Company conducts an impairment assessment on December 31 of each year taking a qualitative and quantitative evaluation approach to determine if there are any adverse market factors or changes in circumstances indicating that the carrying value of goodwill may not be recoverable. If it is more likely than not that an impairment exists, the Company performs a quantitative test that compares the fair value to the net carrying value and records an impairment of goodwill to the extent that the net carrying value exceeds the fair value equal to the excess amount. There was no goodwill impairment recorded by the Company in any of the periods presented.
Recoverability of Long-Lived and Intangible Assets
The Company evaluates the recoverability of its long-lived assets, including amortizable intangible and tangible assets in accordance with authoritative guidance on accounting for the impairment or disposal of long-lived assets. The Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of these assets may not be recoverable. No long-lived asset impairment losses were recorded by the Company during any of the periods presented.
Debt Issuance Costs and Debt Discount
The Company records debt issuance costs as a reduction to the carrying value of the related debt and such amounts are being amortized over the term of the related debt using the straight-line method of amortization, which approximates the effective interest method. Amortization of debt issuance costs are included in interest expense - net on the consolidated statements of operations and comprehensive loss.
The Company accounts for the discounts as an adjustment to the carrying amount and then amortizes the discounts over the terms using the effective interest method.
Deferred Offering Costs
Prior to the Completion of the IPO, the Company recorded deferred offering costs as other assets on its consolidated balance sheets. The costs consist of costs incurred in connection with the Company’s IPO, including certain legal, accounting, printing, and other IPO related costs. After completion of the IPO, these costs were recorded in stockholders’ deficit as a reduction from the IPO proceeds.
There were no deferred offering costs included in other assets as of June 30, 2022 and December 31, 2021 as the accumulated deferred offering costs of $11.8 million were reclassified to additional paid-in capital upon consummation of the IPO in the third quarter of the fiscal year ended December 31, 2021. Additional deferred offering costs of $0.3 million were incurred and included in additional paid-in capital for the six months ended June 30, 2022. No additional deferred offering costs were incurred for the three months ended June 30, 2022.
Business Combinations

The Company accounts for acquisitions under the purchase method of accounting in accordance with ASC 805, Business Combinations. The consolidated statements of operations and comprehensive loss include the results of operations of the acquirees since the date of acquisition. The net assets of the acquisition with the exception of contract assets and contract liabilities (i.e., deferred revenue) were recorded at their estimated fair values as of the acquisition date. Contract assets and contract liabilities acquired in a business combination are recognized and measured on the acquisition date in accordance with ASC 606, as if the Company had originated the contracts.

The fair values may change as the Company obtains additional information, and are expected to be finalized as soon as practicable, but not later than one year from the acquisition date (“measurement period”). Any changes in the fair value of assets and liabilities assumed during the measurement period may result in adjustments to goodwill.
Share-Based Compensation
Prior to the IPO, certain employees were granted unit-based awards by the Company’s predecessor entity, Holdings LLC, as profit interests based on the estimated fair value of the awards at the date of grant. Holdings LLC
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utilized the Black-Scholes pricing model for determining the estimated fair value of the unit-based awards on the date that the awards are granted. Given the absence of any active market for the shares underlying the awards, the fair value of the awards was determined with input from management and third-party valuations.
In connection with the Organizational Transactions, certain of these outstanding unit-based awards were converted into restricted and unrestricted shares and restricted stock units (“RSUs”) of PowerSchool Holdings, Inc. After the IPO, the Company uses the publicly quoted price as reported on the New York Stock Exchange as the fair value of the restricted shares, unrestricted shares and its RSUs on their respective grant dates.
For service based awards, compensation expense is recognized on a straight-line basis over the respective requisite service periods of the awards. For performance-based awards where vesting is contingent upon both a service and a performance condition, compensation expense is recognized over the respective requisite service period of the award when achievement of the performance condition is considered probable. Share-based compensation expense is recognized within cost of revenue; research and development; and selling, general, and administrative expense on the consolidated statements of operations and comprehensive loss based on the function of the employees receiving awards. Any forfeitures are accounted for as they occur.
Income Taxes
As a result of the Organizational Transactions and the IPO, the Company holds an economic interest in Holdings LLC and consolidates its financial position and results. The remaining ownership of Holdings LLC not held by the Company is considered a noncontrolling interest. Holdings LLC is treated as a partnership for income tax reporting purposes. Its members, including the Company, are liable for federal, state, and local income taxes based on their share of Holdings LLC’s taxable income. In addition, the Company is subject to U.S. federal, state, local, and foreign income taxes on the taxable income or loss of certain operating subsidiaries of Holdings LLC that are taxed at the entity level.
The tax provision for interim periods is determined using an estimate of the Company’s annual effective tax rate, adjusted for discrete items, if any, that arise during the period. Each quarter, the Company updates its estimate of its annual effective tax rate, and if the estimated annual effective tax rate changes, the Company makes a cumulative adjustment in such period. The quarterly tax provision and estimate of the Company’s annual effective tax rate are subject to variation due to several factors including variability in pre-tax income (or loss), the mix of jurisdictions to which such income relates, changes in how the Company conducts business, and tax law developments.
Interest and penalties related to unrecognized tax benefits are recorded as income tax expense.
Tax Receivable Agreement
In connection with the Organizational Transactions, the Company entered into a TRA with Topco LLC, Vista Equity Partners and Onex whereby the Company agreed to pay 85% of the amount of certain tax benefits to such pre-IPO owners. Payments to be made under the TRA will vary depending on several factors, including applicable tax rates and the timing and amount of our future income.
The Company accounts for amounts payable under the TRA in accordance with ASC Topic 450, Contingencies. As such, subsequent changes in the fair value of the TRA liability between reporting periods are recognized in the consolidated statement of operations. See Note 17, Income Taxes, for additional information on the TRA.
Cost of Revenue
The Company includes costs directly related to revenue as a component of cost of revenue. Personnel costs associated with cost of revenue consist of salaries, benefits, bonuses, payroll taxes and stock-based compensation expense.
Subscriptions and support
Subscriptions and support cost of revenue consists of costs directly related to subscription services, including personnel costs related to operating data centers and customer support operations, hosting and data center related costs, third-party software licenses and allocated facilities and overhead costs.
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Service
Service cost of revenue consists of personnel costs related to the delivery of the Company’s service offerings, software, equipment, and information technology related expenses, third-party contractor costs, as well as travel and allocated facilities and overhead costs.
License and other
License and other cost of revenue consists primarily of personnel costs associated with delivering licenses, reseller arrangements, and allocated facilities and overhead costs.
Depreciation and amortization
Depreciation and amortization cost of revenue includes allocated depreciation of its computer and software equipment related to the Company’s customer support operations, hosting and data center related costs and amortization of the Company’s capitalized product development costs and technology intangible assets.
Operating Expenses
The Company’s operating expenses consist of research and development, selling, general, and administrative expenses as well as acquisition costs. Personnel costs are the most significant component of operating expenses and consist of salaries, benefits, bonuses, sales incentives, payroll taxes and stock-based compensation expense, as well as the related overhead costs to support the Company’s staff. Other significant components of operating expenses include events and travel, professional fees, allocated facilities and overhead costs, general marketing and promotion costs, and bad debt expense.
Research and development
Research and development expenses consist primarily of personnel costs and the related overhead costs to support our staff, software and hardware costs, third-party professional fees, and allocated facilities and overhead costs.
Selling, general, and administrative
Selling, general, and administrative expenses consist primarily of personnel costs and the related overhead costs to support the Company’s staff across the corporate functions of sales, executive, finance, human resources, information technology, internal operations and legal, as well as sales commissions, third-party professional fees, bad debt expense, marketing and promotional activities, travel, and allocated costs for facilities and overhead costs.
Acquisition costs
Acquisition costs relate primarily to transaction expenses incurred in relation to the Company’s acquisitions.
Depreciation and amortization
Depreciation and amortization costs include allocated depreciation of the Company’s property and equipment and amortization of customer relationship and trademark intangible assets.
Advertising Expense
Advertising costs are expensed as they are incurred. The Company incurred advertising costs of $1.2 million and $2.4 million for the three and six months ended June 30, 2022 and $0.7 million and $1.2 million for the three and six months ended June 30, 2021, respectively. Advertising costs are included within sales, general, and administrative expenses on the consolidated statements of operations and comprehensive loss.
Foreign Currencies
The functional currency of our foreign entities is the local currency. Monetary assets and liabilities and transactions denominated in currencies other than an entity’s functional currency are remeasured into its functional currency using current exchange rates, whereas non-monetary assets and liabilities are remeasured using historical exchange rates. The gains and losses resulting from such remeasurements are classified within other expense (income) – net in the Company’s consolidated statements of operations and comprehensive loss in the period of occurrence.
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The assets and liabilities of our foreign entities are translated into the Company’s reporting currency, U.S. dollars, at exchange rates in effect on the balance sheet date. Revenues and expenses are translated at the average exchange rate during the period. Equity transactions are translated using the historical exchange rates. Adjustments resulting from translating a foreign entity’s financial statements into U.S. dollars are included in accumulated other comprehensive loss as a separate component of stockholders’ equity.
Foreign currency exchange gains and losses are recorded within other expense, net. For the three and six months ended June 30, 2022, foreign currency transaction gains were $0.5 million and $0.6 million, respectively. For the three and six months ended June 30, 2021, foreign currency transaction gains were $0.2 million and foreign currency transaction losses were $0.2 million, respectively.
Comprehensive Loss
Comprehensive loss consists of two components, net loss and other comprehensive income (loss). Other comprehensive income (loss) refers to certain changes that are recorded as an element of stockholders’/members’ equity but are excluded from net loss. The Company’s other comprehensive income (loss) consists of foreign currency translation adjustments from those subsidiaries not using the U.S. dollar as their functional currency. The Company has disclosed accumulated comprehensive income (loss) as a component of stockholders’/members’ equity.
Segment Information
Operating segments are defined as components of an entity for which discrete financial information is available that is regularly reviewed by the Chief Operating Decision Maker (“CODM”) in deciding how to allocate resources and in assessing performance. The Company’s Chief Executive Officer is the Company’s CODM. The CODM reviews financial information on a consolidated basis for purposes of making operating decisions, allocating resources and evaluating financial performance. As such, the Company has one operating and reportable segment. The Company does not have material long-lived assets in geographic areas outside of the United States.
Earnings (Loss) Per Share Attributable to Common Stockholders (“EPS”)
Basic earnings (loss) per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted-average number of shares of Class A common stock outstanding during each period. The Company does not consider the shares of Class B common stock to be participating securities as the holders of Class B of common stock do not have any right to receive dividends or distributions upon the Company’s liquidation or winding up.
Diluted net income (loss) per share attributable to common stockholders is computed by giving effect to all potential shares of common stock, including shares issuable upon conversion of our LLC Units and unvested RSUs and restricted stock awards to the extent they are dilutive.

Prior to the IPO, Holdings LLC was a single member LLC and it did not have units or shares outstanding.
The Company’s members’ equity was held solely by its parent entity. Accordingly, the inclusion of earnings per unit would not be relevant or provide a benefit to the users of the consolidated financial statements for the historical periods.

Since we have reported net losses in the periods presented, potential dilutive shares of common stock are not assumed to have been issued as their effect would have been antidilutive. Therefore, diluted net loss per share attributable to PowerSchool Holdings, Inc. is the same as basic net loss per share attributable to PowerSchool Holdings, Inc.

Non-Controlling Interest

The Organizational Transactions described in Note 1 were executed concurrently with the IPO. As such, the net effect of these transactions along with accumulated net parent investment balance as of the IPO date was allocated pro rata based on the underlying ownership of shares.

Further, due to the Company’s majority economic interest in Holdings LLC and status as its sole manager, the Company consolidates the financial results of Holdings LLC and reports a non-controlling interest on its condensed consolidated statements of operations and comprehensive loss, representing the portion of net loss and comprehensive loss attributable to the holders of the minority interest in Holdings LLC subsequent to the IPO. This
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non-controlling interest is classified as permanent equity on the Company’s condensed consolidated balance sheets.

3. BUSINESS COMBINATIONS
We completed two acquisitions in fiscal year 2021 and three acquisitions during the six months ended June 30, 2022. 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, which are subject to change within the measurement period as preliminary valuations are finalized. Measurement period adjustments are recorded in the reporting period in which the estimates are finalized and adjustment amounts are determined. 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 results of operations of these business combinations have been included in the Company’s consolidated financial statements from their respective acquisition dates.
Fiscal 2022 Acquisitions

Kinvolved, Inc.

On February 1, 2022, the Company acquired all of the equity interests of Kinvolved, Inc. (“Kinvolved”). Kinvolved is a leading provider of K-12 communications, attendance and engagement solutions software. The purpose of the acquisition was to enhance and expand PowerSchool’s product offering.

The total purchase price for Kinvolved was $23.3 million, which included $16.2 million of cash and additional contingent cash consideration, payable based on the achievement of certain performance conditions. The acquisition-date fair value of the contingent consideration was $7.1 million. Transaction costs of $1.2 million incurred in the three months ended March 31, 2022 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 intangible assets of $4.5 million and net tangible assets of $0.2 million. The Company recorded $18.6 million of goodwill arising from the acquisition, 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.

Chalk.com Education ULC

On May 2, 2022, the Company acquired all of the equity interests of Chalk.com Education ULC (“Chalk”). Chalk is an integrated curriculum planning and analytics platform for K-12 schools. The purpose of the acquisition was to enhance and expand PowerSchool’s product offering.

The total purchase price for Chalk was $13.5 million, which included $10.4 million of cash and additional contingent cash consideration payable based on the achievement of certain performance conditions. The acquisition-date fair value of the contingent consideration was $3.1 million. Transaction costs of $0.9 million incurred for the three months ended June 30, 2022 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 intangible assets of $3.6 million and net tangible liabilities of $0.2 million. The Company recorded goodwill of $10.0 million arising from the acquisition, all of which is expected to be deductible for U.S. income tax purposes. The goodwill is a result of the growth expected by creating a comprehensive education technology portfolio.

Headed2, LLC

On June 1, 2022, the Company acquired all of the equity interests of Headed2, LLC (“Headed2”). Headed2 is a career path planning platform that delivers state-level support for college, career, military, and life readiness to
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students of all ages by providing a more complete approach to researching and preparing for future success. The purpose of the acquisition was to enhance and expand PowerSchool’s product offering.

The total purchase price for Headed2 was $5.8 million, which was paid in cash. Transaction costs of $0.5 million incurred for the three months ended June 30, 2022 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 intangible assets of $2.3 million and net tangible assets of $0.2 million. The Company recorded goodwill of $3.3 million arising from the acquisition, all of which is expected to be deductible for U.S. income tax purposes. The goodwill is a result of the growth expected by creating a comprehensive education technology portfolio.

Fiscal 2021 Acquisitions
Hobsons, Inc.
On March 3, 2021, the Company acquired all of the equity interests of Hobsons, Inc. (“Hobsons”). Hobsons’ businesses comprised of Naviance and Intersect. Naviance is a college, career, and life readiness solution used by students across U.S. schools for assessing and developing students’ interests and competencies in preparation for life after high school. Intersect is an innovative admissions solution connecting Naviance students to their best-fit higher education opportunities. The purpose of the acquisition was to enhance and expand the PowerSchool product offering.
The total purchase price for Hobsons was $318.9 million, which was paid in cash. Transaction costs of $4.9 million incurred for the year ended December 31, 2021 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):
Consideration
$318,861 
Accounts receivable
8,058 
Prepaid expenses and other assets
13,967 
Property and equipment
670 
Other assets
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Intangible assets
127,400 
Accounts payable
1,814 
Accrued expenses
4,427 
Deferred revenue
29,618 
Deferred taxes
29,465 
Goodwill
$234,064 
The Company recorded $234.1 million of goodwill, arising from the acquisition, none of which is expected to be deductible for tax purposes. The goodwill is a result of the growth expected by creating a fully comprehensive education technology portfolio for educators, students and parents as well as margin improvements resulting from market participant synergies and operating leverage as sales increase.
The Company believes it is not practicable to provide pro forma statements of operations of the combined business as if the acquisition had been completed at an earlier date as it would require significant estimates and assumptions without the use of hindsight that could be misleading. This is due to seller’s lack of historical financial information sufficient to produce such pro forma statements given that the Company purchased specific businesses that were not segregated in the seller’s financial records and for which separate carve-out financial statements were not readily available.
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Kickboard, Inc.

On December 1, 2021, the Company acquired all of the equity interests of Kickboard, Inc. (“Kickboard”). Kickboard is a provider of behavioral and social emotional learning assessments, analytics and classroom solutions software applications for the K-12 education market. The purpose of the acquisition was to enhance and expand PowerSchool’s product offering.

The total purchase price for Kickboard was $15.5 million, which was paid in cash. Transaction costs of $1.1 million incurred for the year ended December 31, 2021 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):

Consideration$15,479 
Cash1,116 
Accounts receivable626 
Prepaid expenses and other assets357 
Intangible assets5,400 
Deferred tax asset1,824 
Accounts payable73 
Accrued expenses96 
Deferred revenue1,244 
Goodwill$7,569 
The Company recorded $7.6 million of goodwill arising from the acquisition of Kickboard, 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.

Neither the Hobsons nor the Kickboard acquisition had a material impact on the Company’s consolidated financial statements (individually or in the aggregate during the 2021 fiscal period). Therefore, historical results of operations subsequent to the acquisition date and pro forma results of operations have not been presented.

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
June 30,
Six Months Ended June 30,
2022202120222021
SaaS
$107,552 $94,823 $210,216 $170,652 
Professional services
19,119 16,083 35,182 29,036 
Software maintenance
27,458 26,940 54,559 54,202 
License and other
3,462 7,557 7,227 9,660 
Total revenue
$157,591 $145,403 $307,184 $263,550 
Revenue recognized for the three and six month periods ended June 30, 2022 and 2021 from performance obligations satisfied in the prior periods was immaterial.
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Revenue by principal geographic areas based on where the customer is located was as follows (in thousands):
Three Months Ended
June 30,
Six Months Ended June 30,
2022202120222021
United States
$145,106 $134,061 $283,568 $241,811 
Canada
9,239 9,392 17,983 17,668 
Other
3,246 1,950 5,633 4,071 
Total revenue
$157,591 $145,403 $307,184 $263,550 
Deferred Revenue
The changes in the deferred revenue balance were as follows (in thousands):
June 30, 2022December 31, 2021
Balance at beginning of period
$301,157 $235,190 
Decrease from revenue recognized
(210,259)(225,594)
Increase from acquisitions
1,586 26,952 
Increase from current period net deferred revenue additions
85,540 264,609 
Balance at end of period
$178,024 $301,157 
As of June 30, 2022, 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.
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):
June 30, 2022December 31, 2021
Contract costs, current
$5,343 $4,835 
Contract costs, noncurrent
21,397 18,454 
Total contract costs
$26,740 $23,289 
Amortization expense for contract cost assets was $1.1 million and $2.1 million for the three and six months ended June 30, 2022 and $0.8 million and $1.5 million for the three and six months ended June 30, 2021, respectively. There was no impairment of contract cost assets during the periods presented.
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5.     ACCOUNTS RECEIVABLE
Accounts receivable, net, is as follows (in thousands):
June 30, 2022December 31, 2021
Accounts receivable$59,884 $53,367 
Less allowance(3,325)(4,964)
Accounts receivable—net$56,559 $48,403 
The following tables presents the changes in the allowance for doubtful accounts (in thousands):
June 30, 2022December 31, 2021
Allowance for doubtful accounts, beginning balance
$4,964 $7,869 
Additions to (removals from) allowance for doubtful accounts
(1,642)(2,857)
Write-offs of bad debt expense
3 (48)
Allowance for doubtful accounts, ending balance
$3,325 $4,964 
6.     PROPERTY AND EQUIPMENT—NET
Property and equipment by category are as follows (in thousands):
June 30, 2022December 31, 2021
Building
$ $7,519 
Land
 294 
Computer and software
19,331 18,512 
Furniture and fixtures
1,693 2,912 
Leasehold improvements
2,831 3,963 
Property and equipment
23,855 33,200 
Less accumulated depreciation
(16,771)(17,524)
Property and equipment—net
$7,084 $15,676 
Depreciation expense was $1.3 million and $2.6 million for the three and six months ended June 30, 2022 and $1.7 million and $3.3 million for the three and six months ended June 30, 2021. See Note 13 for further information regarding the extinguishment of our Building and Land.

In the three months ended June 30, 2022, the Company vacated several smaller office locations prior to their respective contractual termination dates. As a result, a charge of $1.0 million related to the write-off of the furniture and leasehold improvements within these locations were recognized. See Note 12 for further information regarding the closure of these office locations.



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7.    CAPITALIZED PRODUCT DEVELOPMENT COSTS—NET
Capitalized product development costs and related accumulated amortization consist of the following (in thousands):
June 30, 2022December 31, 2021
Gross capitalized product development costs$132,031 $109,290 
Less accumulated amortization(39,505)(28,679)
Capitalized product development costs—net$92,526 $80,611 
Amortization of capitalized product development costs, included in the cost of revenue section of the consolidated statements of operations and comprehensive loss, were $5.5 million and $10.8 million for the three and six months ended June 30, 2022, and $3.8 million and $7.3 million for the three and six months ended June 30, 2021.
8.    GOODWILL
The changes in the carrying amounts of goodwill were as follows (in thousands):
Balance—December 31, 2021$2,454,692 
Additions due to acquisitions31,937 
Other adjustments1
375 
Balance—June 30, 2022$2,487,004