{ "docId": "019dd923-622c-750b-8b99-856ed0788e9a", "docSlug": "40e9e62f0249", "documentTitle": "PowerSchool Holdings, Inc. (PWSC)", "authorId": "54_Spruce_Point_Capital", "authorName": "Spruce Point Capital Management", "documentKindSlug": "activist-deck", "documentKindLabel": "Activist deck", "sourceTypeSlug": "short_seller", "sourceTypeLabel": "Short seller", "presentationDate": "2024-04-17 00:00:00", "orientation": "landscape", "aspectRatio": 1.3333334, "pageNumber": 6, "pageCount": 117, "prevPage": 5, "nextPage": 7, "slideType": "executive_summary", "function": "summarize", "density": "dense", "nDataPoints": 2, "notes": "The slide uses a yellow background to highlight the core thesis text.", "elementsJson": [ "headline_text", "paragraph", "numbered_list" ], "metadataConfidence": 1, "imagePath": null, "slideHref": "/slides/019dd923-622c-750b-8b99-856ed0788e9a/6", "deckHref": "/decks/019dd923-622c-750b-8b99-856ed0788e9a", "deckJsonHref": "/decks/019dd923-622c-750b-8b99-856ed0788e9a.json", "deckAnchorHref": "/decks/019dd923-622c-750b-8b99-856ed0788e9a#slide-6", "components": [ { "bbox": null, "kind": "callout", "text": "Without the surplus emergency funding that supported excessive spending for the past three years, and facing weak economic growth, inflation, and rising labor costs, we believe K-12 district leaders will be forced to make difficult budgeting decisions.", "attrs": null, "subkind": null, "toolName": "Visual emphasis", "toolSlug": "visual-emphasis", "confidence": null, "componentId": "019dd952-fb91-749f-a6c8-d1caa5e11939", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.12, "w": 0.96, "x": 0.02, "y": 0.37 }, "kind": "list", "text": "1) Multiple Freedom of Information Act requests detailing unique information not previously seen publicly\n2) Industry and legal expert opinions\n3) An analysis of the budgets of several dozen of the largest school districts in the country\n4) A review of PowerSchool’s accounting policies, assumptions and Non-GAAP presentation methods", "attrs": null, "subkind": "numbered", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "7e181bf5-c19d-4a54-8adb-3d64bc839f04", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.48, "w": 0.96, "x": 0.02, "y": 0.5 }, "kind": "paragraph", "text": "We believe the strong growth the Company experienced leading up to, and immediately after, its IPO was the result of unsustainable levels of K-12 spending brought on by COVID-19. Nearly $200 billion spread across three Federal emergency spending bills, collectively known as the ESSER Funds, was injected directly into local K-12 budgets. This created a scenario one former PowerSchool executive described as: “for the first time, districts had more money than places to spend it”. As the last of the federal COVID funding is required to be spent by September 2024, we believe this will create a fiscal cliff that will pressure growth across the ed-tech industry. Without the surplus emergency funding that supported excessive spending for the past three years, and facing weak economic growth, inflation, and rising labor costs, we believe K-12 district leaders will be forced to make difficult budgeting decisions. This will set the stage for a major disruption to contract renewals for K-12 vendors like PowerSchool in 2024 and 2025. This process has already begun; our analysis of the budgets of 50 of the largest school districts in the U.S. shows that tech spending by school districts is decelerating, and in many cases is declining. It is likely that management realizes this and is reaching for new “growth” areas to perpetuate the narrative of being a high-growth Company. We believe these efforts are likely to disappoint investors and the Company will face a major repricing as the ESSER fiscal cliff hits district budgets, causing them to reprioritize spending towards core instructional expenses such as teacher headcount/benefits, ultimately leading to weaker growth and margin pressures for K-12 vendors like PowerSchool.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "bc5e6c70-d784-4aa2-bea6-349a9df55bd0", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.2, "w": 0.96, "x": 0.02, "y": 0.17 }, "kind": "paragraph", "text": "After conducting a forensic review of PowerSchool Holdings, Inc. (NYSE: PWSC or “the Company”), one of the largest K-12 software providers in North America, we have concerns over the Company’s aggressive accounting practices, unsustainable growth expectations, and sales of a product that may potentially be violating several states’ child privacy laws. We also believe the Board may be conflicted and as a result, may not be serving all shareholders equally. To support our conclusion that the Company operates a business on tenuous legal grounds and is unlikely to meet its long-term goals, we’ve backed our research by:", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "c08cb4be-316a-494d-81aa-6b63299adb6c", "frameworkName": null, "frameworkSlug": null }, { "bbox": null, "kind": "quote", "text": "“for the first time, districts had more money than places to spend it” — former PowerSchool executive", "attrs": null, "subkind": null, "toolName": "Authority citation", "toolSlug": "authority-citation", "confidence": null, "componentId": "019dd952-fb91-749f-a6c8-d50638032ab8", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.12, "w": 0.7, "x": 0.28, "y": 0.03 }, "kind": "title", "text": "Spruce Point Is Short PowerSchool Holdings, Inc. (NYSE: PWSC), Sees 30% - 60% Downside Risk", "attrs": null, "subkind": "headline", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "f3adc987-8a84-42db-bf7f-2dae4b9fa65b", "frameworkName": null, "frameworkSlug": null } ], "metrics": [], "tools": [], "frameworks": [], "arcBeats": [], "loops": [], "imagePathAlt": null, "thumbSrc": null, "thumbSrcAlt": null, "locked": true }