Without directly referencing a critical report by a short-seller investor, PowerSchool Holdings Inc. executives addressed some of the key points raised by the short seller, during PowerSchool's quarterly earnings call with investors and analysts on Tuesday.
In April, shares of Folsom-based PowerSchool (NYSE: PWSC) dropped nearly 10% following the release of a report by Spruce Point Capital Management LLC, which said PowerSchool, a maker of software to manage schools and school districts, faced financial headwinds and potential state privacy law violation concerns.
After New York-based Spruce Point released the report in April, PowerSchool shares fell 9.8%, or $1.94, to close at $17.79 on April 17. As of Tuesday, the shares still hadn't fully recovered, closing at $16.64 before the release of quarterly earnings.
PowerSchool representatives never responded to requests for comment about the report by Spruce Point, but executives addressed the report's top two issues during the earnings call.
Spruce Point’s report said that the federal government’s Elementary and Secondary School Emergency Relief Fund, or ESSER, provided nearly $200 billion in direct aid to K-12 districts during the pandemic. The report said the program's expiration would put pressure on vendors like PowerSchool during contract renewals.
PowerSchool CEO Hardeep Gulati said during the quarterly investor call that education budgets are resilient and that PowerSchool's cloud-based products are mission-critical and can replace manual processes.
Gulati said that much of the emergency funding was spent on staffing, and with that funding going away, schools, districts and their remaining staff will need to become more effective, which is what PowerSchool can help them do.
The Spruce Point report also alleged that PowerSchool’s Intersect higher-education guidance program may potentially be violating California’s Student Online Personal Information Protection Act, which regulates K-12 student data. Similar laws have been passed in nearly 30 states.
Gulati said that PowerSchool is certified to comply with federal and state laws on privacy and information security, including the federal Children’s Online Privacy Protection Act, or COPPA. It also complies with California’s Student Online Personal Information Protection Act, and those of other states. And Gulati said that PowerSchool is a proud signatory of the Student Privacy Pledge, a privacy protocol put together by the Future of Privacy Forum and the Software & Information Industry Association.
PowerSchool's first-quarter loss widened to $22.8 million from $14.8 million in the year-earlier period. Revenue rose 16% to $185 million.
Gulati said PowerSchool could reach $1 billion in annual revenue in the next three years.
The company launched in Folsom in 1997, offering online tracking of grades and attendance. Over the years it's added more functionality and modules to support school administrators, teachers, parents and students on a cloud-based platform supporting 50 million students globally.
PowerSchool went public in an initial public offering in 2021.
