Annual Operating Income Increases 176% on 61% Revenue Growth
HERNDON, Va.--(BUSINESS WIRE)--Sept. 8, 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
fourth quarter and fiscal year 2008.
Ron Packard, Chief Executive Officer of K12 Inc. stated, "We are
pleased with the results for our first year as a public company and
even more excited to be able to serve students in four new states in
the upcoming school year."
Revenues for fiscal year 2008 (FY 2008) grew to $226.2 million, an
increase of 61.0 percent over the prior year, primarily due to strong
enrollment growth. EBITDA more than doubled to $25.6 million for FY
2008 over the prior year. Net income for the year on a pro forma basis
was $6.8 million as compared to net income of $3.9 million in the
prior year. Operating income improved to $13.0 million, an increase of
175.5 percent compared with the prior year.
"Our full year results reflect K12's strong share of a rapidly
growing market for virtual public schooling as well as the leverage in
our operating model," said John Baule, Chief Operating Officer and
Chief Financial Officer of K12 Inc.
For the year ended June 30, 2008
-- Revenues were $226.2 million, an increase of $85.6 million or
61.0 percent as compared to revenues of $140.6 million in FY 2007.
Average enrollments for FY 2008 were 40,859, an increase of 51.3
percent over FY 2007.
-- Operating income was $13.0 million, an increase of $8.3 million
or 175.5 percent, as compared to operating income of $4.7 million in
FY 2007. Operating margins increased to 5.8 percent of revenue,
representing a gross increase of 2.4 percentage points, as compared to
3.4 percent for FY 2007.
-- The net income tax benefit was $21.1 million. This reflects a
$27.0 million tax benefit from the 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 $5.9 million, or
46.6 percent of pretax income. Income tax expense was $0.2 million for
FY 2007 as the Company was able to utilize net operating loss
carry-forwards to offset income in the period.
-- Net income was $33.8 million, representing an increase of
$29.9 million, as compared to net income of $3.9 million for FY 2007.
On a pro forma basis, excluding the income tax benefit of $27.0
million, net income for FY 2008 would have been $6.8 million.
-- Diluted net income per share was $1.10. On a pro forma basis,
assuming the conversion of preferred stock at the beginning of the
year ended June 30, 2008 and excluding the income tax benefit of $27.0
million, diluted net income per share for FY 2008 would have been
$0.26.
-- EBITDA was $25.6 million, an increase of $13.5 million or
110.9 percent, as compared to EBITDA of $12.1 million in FY 2007.
EBITDA as a percentage of revenue grew to 11.3 percent, representing a
gross increase of 2.7 percentage points, as compared to 8.6 percent
for FY 2007.
-- Capital expenditures for the year ending June 30, 2008 were
$18.5 million, including $11.7 million for investments in capitalized
curriculum and $6.8 million in property and equipment. In addition,
the Company financed purchases of $10.6 million of computers and
software, primarily for use by students, through capital leases.
-- As of June 30, 2008, the Company had cash and cash equivalents
of $71.7 million and net operating loss carryforwards of $70.8
million.
For the three months ended June 30, 2008
-- Revenues for the fourth quarter were $56.5 million, an increase
of $20.9 million or 58.5 percent, as compared to revenues of $35.6
million for the fourth quarter of FY 2007. Average enrollments for the
fourth quarter were 40,033, an increase of 50.7 percent over the
fourth quarter of FY 2007.
-- Operating loss for the fourth quarter was ($0.7) million as
compared to an operating loss of ($4.2) million for the fourth quarter
of FY 2007. Operating margins improved to (1.3) percent of revenue as
compared to (11.8) percent for the fourth quarter of FY 2007.
-- Income tax benefit for the fourth quarter was $17.7 million.
This reflects a $17.3 million tax benefit from the reversal of the
valuation allowance on net deferred tax assets. Had that reversal not
occurred, the Company would have recorded an income tax benefit of
$0.4 million. Income tax expense was $0.0 million for the fourth
quarter of FY 2007 as the income tax benefit from the fourth quarter
operating loss was offset by a reserve to increase the valuation
allowance for deferred tax assets created during the period.
-- Net income for fourth quarter was $17.1 million as compared to
a net loss of ($4.3) million for the fourth quarter of FY 2007. On a
pro forma basis, excluding the $17.3 million tax benefit, net income
for the fourth quarter of FY 2008 would have been a net loss of ($0.2)
million.
-- Diluted net income per share for the fourth quarter of FY 2008
was $0.59. On a pro forma basis, excluding the income tax benefit of
$17.3 million, diluted net loss per share for the fourth quarter of FY
2008 would have been ($0.01).
-- EBITDA for the fourth quarter was $3.0 million as compared to
EBITDA of ($1.4) million for the same period in 2007. EBITDA as a
percentage of revenue improved to 5.3 percent as compared to (3.9)
percent for the fourth quarter of FY 2007.
FY 2009 Outlook
The Company indicated that it is in the midst of its peak
enrollment season and will provide annual revenue and earnings
guidance when they report their first quarter results. The Company
reaffirmed its stated long-term objective of growing revenues in
existing states, defined as states in which the Company has operated
for more than one year, by at least 25%. The Company also indicated
that based on current information, it expects revenues to exceed $300
million in FY 2009 with the increase in revenue driven primarily by
enrollment growth, as per pupil revenue is expected to increase only
slightly.
In addition, the Company anticipates improving operating margins
by 1 to 2 percent in FY 2009 over the prior year. While management
believes that there are opportunities to improve margins further, in
the coming year they intend to continue to spend aggressively on
marketing to take advantage of rapidly expanding market opportunities.
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 assumption 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
September 8, 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 fourth quarter and full year 2008
financial results and its outlook for fiscal year 2009 during a
conference call scheduled for September 9, 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
888-679-8034 (domestic) or 617-213-4847 (international) at 8:20 a.m.
(ET). The participant passcode is 25847540.
A replay of the call will be available starting on September 9,
2008, through September 16, 2008, at 888-286-8010 (domestic) or
617-801-6888 (international), passcode 28076116. It will also be
archived at www.k12.com in the investor relations section for 60 days.
K12 INC.
UNAUDITED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
----------------------------------------------------------------------
June 30, June 30,
ASSETS 2008 2007
------------------------------------------------ ---------- ----------
Current assets
Cash and cash equivalents $ 71,682 $ 1,660
Accounts receivable, net of allowance of $733
and $589 at June 30, 2008 and June 30, 2007,
respectively 30,630 15,455
Inventories, net 20,672 13,804
Current portion of deferred tax asset 8,344 --
Prepaid expenses and other current assets 3,648 1,245
---------- ----------
Total current assets 134,976 32,164
Property and equipment, net 24,536 17,234
Capitalized curriculum development costs, net 21,366 9,671
Deferred tax asset, net of current portion 12,749 --
Goodwill 1,754 --
Other assets, net 1,158 1,182
Intangible assets 365 250
Deposits and other assets 420 711
---------- ----------
Total assets $ 197,324 $ 61,212
========== ==========
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED
STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Bank overdraft $ -- $ 1,577
Line of credit -- 1,500
Accounts payable 14,388 6,928
Accrued liabilities 4,684 1,819
Accrued compensation and benefits 10,049 6,200
Deferred revenue 3,114 2,620
Current portion of capital lease obligations 6,107 2,780
Current portion of notes payable 413 192
---------- ----------
Total current liabilities 38,755 23,616
Deferred rent, net of current portion 1,640 1,684
Capital lease obligations, net of current
portion 6,445 3,974
Notes payable, net of current portion 196 189
---------- ----------
Total liabilities 47,036 29,463
---------- ----------
Commitments and contingencies
Redeemable convertible preferred stock
Redeemable Convertible Series C Preferred
stock, par value $0.0001; no shares
authorized, issued or outstanding at June 30,
2008; 10,784,313 shares authorized and
9,776,756 shares issued and outstanding at
June 30, 2007; liquidation value of $133,629
at June 30, 2007 -- 91,122
---------- ----------
Redeemable Convertible Series B Preferred
stock, par value $0.0001; no shares
authorized, issued or outstanding at June 30,
2008; 14,901,960 shares authorized and
10,102,899 shares issued and outstanding at
June 30, 2007; liquidation value of $138,087
at June 30, 2007 -- 138,434
---------- ----------
Stockholders' equity (deficit)
Common stock, par value $0.0001; 100,000,000
shares authorized; 27,944,826 and 2,041,604
shares issued and outstanding at June 30, 2008
and June 30, 2007, respectively 3 1
Additional paid-in capital 323,621 --
Accumulated deficit (173,336) (197,808)
---------- ----------
Total stockholders' equity (deficit) 150,288 (197,807)
---------- ----------
Total liabilities, redeemable convertible
preferred stock and stockholders' equity
(deficit) $ 197,324 $ 61,212
========== ==========
K12 INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
----------------------------------------------------------------------
Three Months Ended Year Ended
June 30, June 30,
------------------------ ------------------------
2008 2007 2008 2007
------------ ----------- ------------ -----------
Revenues $ 56,475 $ 35,626 $ 226,235 $ 140,556
------------ ----------- ------------ -----------
Cost and expenses
Instructional costs
and services 32,462 20,961 131,282 76,064
Selling,
administrative,
and other
operating expenses 22,712 16,100 72,393 51,159
Product development
expenses 2,021 2,756 9,550 8,611
------------ ----------- ------------ -----------
Total costs and
expenses 57,195 39,817 213,225 135,834
------------ ----------- ------------ -----------
Income (loss) from
operations (720) (4,191) 13,010 4,722
Interest income
(expense), net 88 (165) (295) (639)
------------ ----------- ------------ -----------
Net income (loss)
before income tax
expense (632) (4,356) 12,715 4,083
Income tax benefit
(expense) 17,735 9 21,058 (218)
------------ ----------- ------------ -----------
Net income (loss) 17,103 (4,347) 33,773 3,865
Dividends on
preferred stock -- (1,670) (3,066) (6,378)
Preferred stock
accretion -- (5,810) (12,193) (22,353)
------------ ----------- ------------ -----------
Net income (loss)
attributable to
common stockholders $ 17,103 $ (11,827) $ 18,514 $ (24,866)
============ =========== ============ ===========
Net income (loss)
attributable to
common stockholders
per share:
Basic $ 0.62 $ (5.89) $ 1.18 $ (12.42)
============ =========== ============ ===========
Diluted $ 0.59 $ (5.89) $ 1.10 $ (12.42)
============ =========== ============ ===========
Weighted average
shares used in
computing per share
amounts(1):
Basic 27,793,003 2,009,374 15,701,278 2,001,661
============ =========== ============ ===========
Diluted 29,125,372 2,009,374 16,850,909 2,001,661
============ =========== ============ ===========
(1) The basic and diluted weighted average common shares
outstanding for the three and twelve months ended June 30, 2008
reflect the weighted average effect of the conversion of preferred
stock to common stock upon the closing of the Company's initial public
offering on December 18, 2007.
K12 INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
----------------------------------------------------------------------
Year Ended
June 30,
-------------------
2008 2007
--------- ---------
Cash Flows from Operating Activities
Net income $ 33,773 $ 3,865
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization expense 12,568 7,404
Stock based compensation expense 1,465 218
Deferred income taxes (21,093) --
Provision for (reduction of) doubtful accounts 142 (852)
Provision for inventory obsolescence 407 95
Provision for (reduction of) student computer
shrinkage and obsolescence 162 (48)
Changes in assets and liabilities:
Accounts receivable (14,597) (3,154)
Inventories (7,275) (2,790)
Prepaid expenses and other current assets (2,403) (763)
Other assets 97 (255)
Deposits and other assets (154) (322)
Accounts payable 7,375 579
Accrued liabilities 1,557 (824)
Accrued compensation and benefits 3,828 1,100
Deferred revenue (273) 1,224
Deferred rent (44) 86
--------- ---------
Net cash provided by operating activities 15,535 5,563
--------- ---------
Cash flows from investing activities
Purchase of property and equipment (6,822) (5,366)
Purchase of domain name (250) --
Cash paid in the acquisition of Power-Glide (119) --
Capitalized curriculum development costs (11,669) (8,683)
--------- ---------
Net cash used in investing activities (18,860) (14,049)
--------- ---------
Cash flows from financing activities
Cash received from issuance of common stock, net
of underwriters commission 74,493 --
Cash received from issuance of common stock --
Regulation S transaction 15,000 --
Deferred initial public offering costs (3,226) --
Net borrowings from (payments on) revolving credit
facility (1,500) 1,500
Proceeds (payments on) from notes payable --
related party -- (4,025)
Proceeds from notes payable -- 441
Repayments for capital lease obligations (4,767) (1,384)
Payments on notes payable (180) (62)
Proceeds from exercise of stock options 1,510 292
Payment of cash dividend - preferred stock (6,406) --
Bank overdraft (repayment on) (1,577) 1,577
Release of cash from restricted escrow account -- 2,332
--------- ---------
Net cash provided by financing activities 73,347 671
--------- ---------
Net change in cash and cash equivalents 70,022 (7,815)
--------- ---------
Cash and cash equivalents, beginning of year 1,660 9,475
--------- ---------
Cash and cash equivalents, end of year $ 71,682 $ 1,660
========= =========
Non-GAAP Financial Measures
EBITDA
EBITDA consists of net income minus interest income, minus income
tax benefit, plus interest expense, plus income tax expense and plus
depreciation and amortization. Interest income consists primarily of
interest earned on short-term investments or cash deposits. Interest
expense primarily consists 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 (loss) to
EBITDA:
(thousands)
Three Months Ended Year Ended
June 30, June 30,
2008 2007 2008 2007
--------- -------- --------- -------
Net income (loss) $ 17,103 $(4,347) $ 33,773 $ 3,865
Interest (income) expense, net (88) 165 295 639
Income tax (benefit) expense, net (17,735) (9) (21,058) 218
Depreciation and amortization 3,709 2,786 12,568 7,404
--------- -------- --------- -------
EBITDA $ 2,989 $(1,405) $ 25,578 $12,126
Pro Forma Net Income (Loss) 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 and
twelve months ended June 30, 2008 and 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 (loss) per share on a more
representative basis with future operations.
The following table provides a reconciliation of pro forma net
income (loss) per share to the Company's actual results under GAAP for
the three and twelve months ended June 30, 2008 as follows:
(In thousands, except share and per
share amounts)
--------------------------------------
Three months ended
--------------------------------------
June 30, 2008
--------------------------------------
As Reported Adjustments Pro forma
------------ ----------- -------------
Income/(Loss) before income
taxes $ (632) $ -- $ (632)
Income tax benefit (expense),
net 17,735 (17,302) 433
Net income (loss) 17,103 (17,302) (199)
Less preferred stock accretion -- --
Less preferred stock dividends -- --
------------ ----------- -------------
Net income (loss) available to
common stockholders $ 17,103 $(17,302) $ (199)
============ =========== =============
Net income (loss) per common
share:
Basic $ 0.62 $ (0.01)
Diluted $ 0.59 $ (0.01)
Weighted average common shares
outstanding:
Basic 27,793,003 27,793,003
Diluted 29,125,372 27,793,003
(In thousands, except share and per
share amounts)
--------------------------------------
Year ended
------------------------------------
June 30, 2008
------------------------------------
As Reported Adjustments Pro forma
----------- ----------- ------------
Income/(Loss) before income
taxes $ 12,715 $ -- $ 12,715
Income tax benefit (expense),
net 21,058 (26,986) (5,928)
Net income (loss) 33,773 (26,986) 6,787
Less preferred stock accretion 12,193 12,193 --
Less preferred stock dividends 3,066 3,066 --
----------- ----------- ------------
Net income (loss) available to
common stockholders $ 18,514 $ (11,727) $ 6,787
=========== =========== ============
Net income (loss) per common
share:
Basic $ 1.18 $ 0.27
Diluted $ 1.10 $ 0.26
Weighted average common shares
outstanding:
Basic 15,701,278 9,288,045 24,989,323
Diluted 16,850,909 9,288,045 26,138,954
The following table provides a reconciliation of pro forma net
income (loss) per share to the Company's actual results under GAAP for
the three and twelve months ended June 30, 2007 as follows:
(In thousands, except share and per
share amounts)
--------------------------------------
Three months ended
------------------------------------
June 30, 2007
------------------------------------
As Reported Adjustments Pro forma
----------- ----------- ------------
Income/(Loss) before income
taxes $ (4,356) $ -- $ (4,356)
Income tax benefit (expense),
net 9 -- 9
Net income (4,347) -- (4,347)
Less preferred stock accretion 5,810 5,810 --
Less preferred stock dividends 1,670 1,670 --
--------- ---------- ----------
Net income (loss) available to
common stockholders $ (11,827) $ 7,480 $ (4,347)
========= ========== ==========
Net income (loss) per common
share:
Basic $ (5.89) $ (0.20)
Diluted $ (5.89) $ (0.20)
Weighted average common shares
outstanding:
Basic 2,009,374 19,879,655 21,889,029
Diluted 2,009,374 19,879,655 21,889,029
(In thousands, except share and per
share amounts)
-------------------------------------
Year ended
-------------------------------------
June 30, 2007
-------------------------------------
As Reported Adjustments Pro forma
------------ ----------- ------------
Income/(Loss) before income
taxes $ 4,083 $ -- $ 4,083
Income tax benefit (expense),
net (218) -- (218)
Net income 3,865 -- 3,865
Less preferred stock accretion 22,353 22,353 --
Less preferred stock dividends 6,378 6,378 --
--------- ---------- ----------
Net income (loss) available to
common stockholders $ (24,866) $ 28,731 $ 3,865
========= ========== ==========
Net income (loss) per common
share:
Basic $ (12.42) $ 0.18
Diluted $ (12.42) $ 0.18
Weighted average common shares
outstanding:
Basic 2,001,661 19,879,655 21,881,316
Diluted 2,001,661 19,887,280 21,888,941
About K12
K12 Inc., a technology-based education company, is a leading
national provider of proprietary curriculum and educational services
created for online delivery to students in kindergarten through 12th
grade. K12 provides individualized, one-to-one learning solutions for
students in online schools, distance education programs and
classrooms. K12 Inc. also operates the K12 International Academy, an
accredited, diploma-granting online private school serving students
worldwide.
K12's mission is to maximize a child's potential by providing
access to an engaging and effective education, regardless of
geographic location or socio-economic background. More than 40,000
students are using the K12 learning program in online public schools
and other e-learning programs across the country.
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.