K12's Quarterly Revenue up 49% on Strong Enrollment Growth
HERNDON, Va.--(BUSINESS WIRE)--Nov. 13, 2008--K12 Inc. (NYSE:
LRN), a leading provider of proprietary, technology-based curriculum
and education services created for online delivery to students in
kindergarten through 12th grade, today announced its results for the
first quarter of fiscal year 2009.
Revenues for the first quarter grew to $88.6 million, an increase
of 49.3 percent over the first quarter in the prior year, primarily
due to strong enrollment growth. EBITDA increased 64.9 percent to
$13.6 million for the first quarter of fiscal year 2009 (FY 2009) over
the same quarter in the prior year. Net income for the quarter was
$5.9 million as compared to net income on a pro forma basis of
$3.1 million in the same period in the prior year. Operating income
improved to $9.2 million, an increase of 52.7 percent compared with
the first quarter of fiscal year 2008 (FY 2008). Ron Packard, Chief
Executive Officer of K12 Inc. stated, "Clearly, we are pleased with 49
percent revenue growth. The strong growth in enrollments is indicative
of the robust demand for K12's high quality educational offering."
"Since our first quarter is generally predictive of our full year
results, this quarter provides us with momentum for the remainder of
the fiscal year," said John Baule, Chief Operating Officer and Chief
Financial Officer of K12 Inc.
For the three months ended September 30, 2008 (First Quarter
Fiscal Year 2009)
-- Revenues for the first quarter were $88.6 million, an increase
of $29.2 million or 49.3 percent, as compared to revenues of
$59.4 million for the first quarter of FY 2008. Average
enrollments for the first quarter were 56,233, an increase of
42.4 percent over the first quarter of FY 2008.
-- Operating income for the first quarter was $9.2 million, an
increase of $3.2 million or 52.7 percent, as compared to
operating income of $6.0 million for the first quarter of FY
2008. Operating margins increased to 10.4 percent of revenue,
representing a gross increase of 0.3 percentage points, as
compared to 10.1 percent for the first quarter of FY 2008.
-- Income tax expense for the first quarter was $3.8 million,
representing an effective tax rate of 40.8%. Income tax
benefit for the first quarter of FY 2008 was $7.1 million, due
to the $9.7 million reversal of the valuation allowance on net
deferred tax assets. Had that reversal not occurred, the
Company would have recorded an income tax expense of
$2.6 million.
-- Net income for the first quarter was $5.9 million as compared
to net income of $12.8 million for the first quarter of FY
2008. Net income for the first quarter of FY 2008, excluding
the $9.7 million tax benefit, would have been $3.1 million.
-- Diluted net income per share for the first quarter was $0.20.
On a pro forma basis, excluding the income tax benefit of $9.7
million, diluted net income per share for the first quarter of
FY 2008 would have been $0.14.
-- EBITDA for the first quarter was $13.6 million, an increase of
$5.3 million or 64.9 percent, as compared to EBITDA of
$8.3 million for the first quarter of FY 2008. EBITDA as a
percentage of revenue improved to 15.4 percent, representing a
gross increase of 1.5 percentage points, as compared to 13.9
percent for the first quarter of FY 2008.
-- Capital expenditures for the first quarter were $6.0 million,
including $3.6 million for investments in capitalized
curriculum and $2.4 million in property and equipment. In
addition, the Company financed purchases of $12.5 million of
computers and software, primarily for use by students, through
capital leases.
-- As of September 30, 2008, the Company had cash and cash
equivalents of $49.0 million and net operating loss
carryforwards of $67.7 million.
FY 2009 Outlook
For full fiscal year 2009, the Company is forecasting revenues of
approximately $310 million to $320 million and operating income of
approximately $19 million to $22 million, depending upon fourth
quarter investment levels. The Company traditionally invests
significant amounts in the fourth quarter to generate subsequent year
enrollments.
In addition, the company is forecasting for fiscal year 2009:
-- Depreciation and amortization of approximately $19 million to
$20 million
-- Non-cash stock compensation expense of approximately $2.7
million to 3.0 million
-- Interest expense, net of interest income of approximately $0.4
million to $0.7 million
-- Estimated tax rate of approximately 43% to 44%
-- Fully diluted shares outstanding of approximately 30 million
to 31 million
-- Capital expenditures of approximately $38 million to $42
million, including purchases of student computers
Forward Statements
This press release contains forward-looking statements within the
meaning of federal securities regulations. These forward-looking
statements are identified by their use of terms and phrases such as
"anticipate," "believe," "could," "estimate," "expect," "intend,"
"may," "plan," "predict," "project," "will," "continue" and other
similar terms and phrases, including references to assumptions and
forecasts of future results. Forward-looking statements are not
guarantees of future performance and involve known and unknown risks,
uncertainties and other factors which may cause the actual results to
differ materially from those anticipated at the time the
forward-looking statements are made. These risks include, but are not
limited to: the reduction of per pupil funding amounts at the schools
we serve; reputation harm resulting from poor performance or
misconduct of other virtual school operators; challenges from virtual
public school opponents; failure of the schools we serve to comply
with regulations resulting in a loss of funding; discrepancies in
interpretation of legislation by regulatory agencies that may lead to
payment or funding disputes; termination of our contracts with schools
due to a loss of authorizing charter; failure to renew existing
contracts with schools; increased competition; and other risks and
uncertainties associated with our business described in the Company's
filings with the Securities and Exchange Commission. Although the
Company believes the expectations reflected in such forward-looking
statements are based upon reasonable assumptions, it can give no
assurance that the expectations will be attained or that any deviation
will not be material. All information in this release is as of
November 13, 2008, and the Company undertakes no obligation to update
any forward-looking statement to conform the statement to actual
results or changes in the Company's expectations.
Conference Call
The Company will discuss the first quarter 2009 financial results
and its outlook for fiscal year 2009 during a conference call
scheduled for November 14, 2008 at 8:30 a.m. eastern time (ET).
The conference call will be webcast and available on the K12 web
site at www.K12.com through the investor relations link. Please access
the web site at least 15 minutes prior to the start of the call to
register and download and install any necessary software.
To participate in the live call, investors should dial
866-700-6979 (domestic) or 617-213-8836 (international) at 8:20 a.m.
(ET). The participant passcode is 31579164.
A replay of the call will be available starting on November 14,
2008, through November 21, 2008, at 888-286-8010 (domestic) or
617-801-6888 (international), passcode 80681551. It will also be
archived at www.k12.com in the investor relations section for 60 days.
K12 INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
September 30, June 30,
2008 2008
--------------- ---------------
ASSETS
Current assets
Cash and cash equivalents $ 49,023 $ 71,682
Accounts receivable, net of
allowance of $1,529 and $1,458 at
September 30, 2008 and June 30,
2008, respectively 88,969 30,630
Inventories, net 14,000 20,672
Current portion of deferred tax
asset 8,575 8,344
Prepaid expenses and other current
assets 2,820 3,648
--------------- ---------------
Total current assets 163,387 134,976
Property and equipment, net 35,949 24,536
Capitalized curriculum development
costs, net 23,943 21,366
Deferred tax asset, net of current
portion 11,037 12,749
Goodwill 1,825 1,754
Other assets, net 6,388 1,943
--------------- ---------------
Total assets $ 242,529 $ 197,324
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 14,021 $ 14,388
Accrued liabilities 7,955 4,684
Accrued compensation and benefits 5,653 10,049
Deferred revenue 24,938 3,114
Current portion of capital lease
obligations 10,014 6,107
Current portion of notes payable 326 413
--------------- ---------------
Total current liabilities 62,907 38,755
Deferred rent, net of current portion 1,644 1,640
Capital lease obligations, net of
current portion 13,522 6,445
Notes payable, net of current portion 112 196
--------------- ---------------
Total liabilities 78,185 47,036
--------------- ---------------
Commitments and contingencies
Stockholders' equity
Common stock, par value $0.0001;
100,000,000 shares authorized;
28,697,673 and 27,944,826 shares
issued and outstanding at
September 30, 2008 and June 30,
2008, respectively 3 3
Additional paid-in capital 331,763 323,621
Accumulated deficit (167,422) (173,336)
--------------- ---------------
Total stockholders' equity 164,344 150,288
--------------- ---------------
Total liabilities and
stockholders' equity $ 242,529 $ 197,324
=============== ===============
K12 INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
Three Months Ended September 30,
--------------------------------
2008 2007
--------------- ---------------
Revenues $ 88,625 $ 59,353
--------------- ---------------
Cost and expenses
Instructional costs and services 54,421 34,778
Selling, administrative, and other
operating expenses 22,835 16,039
Product development expenses 2,195 2,527
--------------- ---------------
Total costs and expenses 79,451 53,344
--------------- ---------------
Income from operations 9,174 6,009
Interest income (expense), net 107 (304)
--------------- ---------------
Income before income tax expense and
minority interest 9,281 5,705
Income tax (expense) benefit (3,786) 7,117
--------------- ---------------
Income before minority interest 5,495 12,822
Minority interest in loss of
consolidated subsidiaries, net of
tax 419 --
--------------- ---------------
Net income 5,914 12,822
--------------- ---------------
Dividends on preferred stock -- (1,671)
Preferred stock accretion -- (6,560)
--------------- ---------------
Net income attributable to common
stockholders $ 5,914 $ 4,591
=============== ===============
Net income attributable to common
stockholders per share:
Basic $ 0.21 $ 2.25
=============== ===============
Diluted $ 0.20 $ 0.20
=============== ===============
Weighted average shares used in
computing per share amounts:
Basic 28,487,440 2,043,589
=============== ===============
Diluted 29,499,102 22,744,525
=============== ===============
Non-GAAP Financial Measures
EBITDA
EBITDA consists of net income minus interest income, minus income
tax benefit, minus minority interest benefit, plus interest expense,
plus income tax expense, plus minority interest expense and plus
depreciation and amortization. Interest income consists primarily of
interest earned on short-term investments or cash deposits. Interest
expense consists primarily of interest expense for capital leases,
long-term and short-term borrowings. We use EBITDA as a measure of
operating performance. However, EBITDA is not a recognized measurement
under U.S. generally accepted accounting principles, or GAAP, and when
analyzing our operating performance, investors should use EBITDA in
addition to, and not as an alternative for, net income as determined
in accordance with GAAP. Because not all companies use identical
calculations, our presentation of EBITDA may not be comparable to
similarly titled measures of other companies. Furthermore, EBITDA is
not intended to be a measure of free cash flow for our management's
discretionary use, as it does not consider certain cash requirements
such as tax payments.
We believe EBITDA is useful to an investor in evaluating our
operating performance because it is widely used to measure a company's
operating performance without regard to items such as depreciation and
amortization, which can vary depending upon accounting methods and the
book value of assets, and to present a meaningful measure of corporate
performance exclusive of our capital structure and the method by which
assets were acquired. Our management uses EBITDA as a measurement of
operating performance, because it assists us in comparing our
performance on a consistent basis, as it removes depreciation,
amortization, interest and taxes. We also use EBITDA in presentations
to the members of our board of directors to enable our board to have
the same measurement basis of operating performance as is used by
management to compare our current operating results with corresponding
prior periods and with the results of other companies in our industry.
The following table provides a reconciliation of net income to EBITDA:
(in thousands)
Three Months Ended
September 30,
--------------------------------
2008 2007
-------------- --------------
Net income $ 5,914 $ 12,822
Interest (income) expense, net (107) 304
Income tax expense (benefit), net 3,786 (7,117)
Minority interest (419) -
Depreciation and amortization 4,446 2,252
--------------- ---------------
EBITDA $ 13,620 $ 8,261
=============== ===============
Pro Forma Net Income per Share
On December 18, 2007, the Company completed an initial public
offering in which it sold 4,450,000 shares of common stock.
Concurrently with the completion of the offering was the automatic
conversion of outstanding preferred shares into 19,879,675 common
shares. Also concurrent with the IPO, the Company paid dividends of
$6.4 million on its Series C preferred stock. The Company has provided
pro forma net income per basic and diluted share for the three months
ended September 30, 2007 in this release, in addition to providing
financial results in accordance with GAAP. The pro forma net income
per basic and diluted share reflects the following for all periods
presented: (i) weighted average effect of the IPO shares,
(ii) elimination of preferred stock dividends, (iii) elimination of
preferred stock accretion, (iv) conversion of the preferred shares to
common shares as of the beginning of the period, and (v) elimination
of the income tax benefit from the reversal of the deferred tax asset
valuation allowance. The Company believes pro forma income per basic
and diluted share provides useful information to investors by
reflecting income per share on a more representative basis with future
operations.
The following table provides a reconciliation of pro forma net
income per share to the Company's actual results under GAAP for the
three months ended September 30, 2008 and 2007 as follows:
(in thousands, except share and per share data)
September 30, 2008
--------------------------------------
As Reported Adjustments Pro forma
--------------------------------------
Income before income taxes $ 9,281 $ -- $ 9,281
Income tax (expense) benefit,
net (3,786) -- (3,786)
Minority Interest 419 -- 419
Net income 5,914 5,914
Less preferred stock dividends -- --
Less preferred stock accretion -- --
------------- ----------- ------------
Net income available to common
stockholders $ 5,914 $ -- $ 5,914
============= =========== ============
Net income per common share:
Basic $ 0.21 $ 0.21
Diluted $ 0.20 $ 0.20
Weighted average common shares
outstanding:
Basic 28,487,440 28,487,440
Diluted 29,499,102 29,499,102
September 30, 2007
--------------------------------------
As Reported Adjustments Pro forma
---------------------------------------
Income before income taxes $ 5,705 $ -- $ 5,705
Income tax (expense) benefit,
net 7,117 (9,695) (2,578)
Minority Interest -- --
Net income 12,822 3,127
Less preferred stock dividends 1,671 (1,671) --
Less preferred stock accretion 6,560 (6,560) --
------------ ------------ ------------
Net income available to common
stockholders $ 4,591 $ (1,464) $ 3,127
============ ============ ============
Net income per common share:
Basic $ 2.25 $ 0.14
Diluted $ 0.20 $ 0.14
Weighted average common shares
outstanding:
Basic 2,043,586 19,879,655 21,923,241
Diluted 22,744,522 22,744,522
About K12
K12 Inc. (NYSE: LRN), a technology-based education company, is the
nation's leading provider of proprietary curriculum and online
education programs to students in grades K-12. K12 provides its
curriculum and academic services to online schools, traditional
classrooms, blended school programs, and directly to families. Over
50,000 students in 21 states are enrolled in online public schools
using the K12 program. K12 Inc. also operates the K12 International
Academy, an accredited, diploma-granting online private school serving
students worldwide.
K12's mission is to provide any child the curriculum and tools to
maximize success in life, regardless of geographic, financial, or
demographic circumstances. K12 Inc. is accredited through the
Commission on International and Trans-Regional Accreditation (CITA).
It is the largest national K-12 online school provider to be
recognized by CITA. More information can be found at www.K12.com.
K12(R) is a registered trademark and the K12 logo, xPotential and
Unleash the xPotential are trademarks of K12 Inc.
CONTACT: K12 Inc.
Investor Contact:
Keith Haas
VP, Financial Planning & Analysis and Investor Relations
703-483-7077
khaas@k12.com
or
Press Contact:
Jeff Kwitowski
VP, Public Relations
703-483-7281
jkwitowski@k12.com
SOURCE: K12 Inc.