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  "documentTitle": "PowerSchool Holdings, Inc. (PWSC)",
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  "authorName": "Spruce Point Capital Management",
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  "presentationDate": "2024-04-17 00:00:00",
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  "notes": "The slide uses a list-based structure to systematically dismantle the company's financial reporting integrity.",
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      "text": "The net effect of these two impacts brings PowerSchool's adjusted leverage to 5.8x – a standout in the ed-tech industry where many companies have a net cash position.",
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      "text": "Our analysis shows that PowerSchool's reported Adj. EBITDA growth has come entirely from non-earnings growth. Between 2020 and 2023, 100% of the Company's Adj. EBITDA growth has come from amortization or share-based compensation.",
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      "text": "PowerSchool appears to be delaying expense recognition to inflate earnings by amortizing its contract acquisition costs over seven (7) years despite customer contracts typically lasting just three (3) years.",
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      "text": "PowerSchool makes shifty references to whether students or school districts are their ultimate customers. Revenue recognition depends on who exactly the customer is and when the service is delivered.",
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      "text": "Our analysis of nearly 20 companies that have taken impairments in the last 12 months reveal that a typical impairment would cause PowerSchool to lose 30%+ of its book equity.",
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      "text": "Our analysis shows that PowerSchool's true leverage is nearly 2x what it reports. The net effect of these two impacts brings PowerSchool's adjusted leverage to 5.8x.",
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      "text": "PowerSchool's reported Adj. EBITDA calculation also excludes the impact from ~$40 million in annual capitalized software development costs, a figure that has grown significantly since 2020.",
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      "text": "The Company just changed revenue recognition language citing price discounts which also may suggest that previously recognized revenue was inflated by ignoring discounts. The Company's days sales outstanding (DSOs) trend is alarming.",
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      "text": "We believe the Company's Adj. EBITDA is also inflated by dubious restructuring add-backs. Despite telling the SEC in a letter in 2021 that it did not expect to incur meaningful restructuring expense adjustments post IPO, the Company's adjustments from restructuring expenses more than doubled in 2022.",
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      "text": "PowerSchool's intangibles balance and a change to its impairment testing methodology raises questions. Goodwill and intangibles account for 91% of total assets as of FY23.",
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      "text": "adjusted leverage: 5.8x",
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      "text": "We believe PowerSchool's aggressive accounting practices enable it to present an illusion of Adjusted EPS and EBITDA growth despite stagnating cash flows, may allow it to prematurely recognize revenue, and understate leverage.",
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      "kind": "title",
      "text": "Management Using Aggressive Accounting To Paint A More Favorable Picture To The Market",
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