K12's Quarterly Revenue up 68 Percent on Strong Enrollment GrowthHERNDON, Va., Feb 14, 2008 (BUSINESS WIRE) -- K12 Inc. (NYSE Arca: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 second quarter of its 2008 fiscal year.
Revenues for the quarter grew to $54.4 million, an increase of 68.1
percent over the second quarter of the previous year, primarily due to
strong enrollment growth. EBITDA for the second quarter of 2008 more
than doubled over the prior year, increasing to $6.3 million from $3.0
million.
Net income for second quarter was $1.4 million, down slightly from
the prior year, primarily due to the recording of income tax expense
of $1.6 million for the second quarter as compared to income tax
expense of less than $0.1 million recorded in the prior year when the
Company utilized net operating loss carry forwards to offset income.
Pretax income doubled to $3.0 million for the second quarter as
compared with the second quarter of fiscal year 2007.
"We are delighted not only with the strong revenue growth, but
also with the growing acceptance of the K12 offering as the right
solution for many children's education needs," said Ron Packard, chief
executive officer of K12 Inc. "K12's value proposition is being
recognized by customers."
For the three months ended December 31, 2007
-- Revenues increased by 68.1 percent for the second quarter of
fiscal year 2008 (FY 2008) over the same quarter last year due
to strong enrollment growth.
-- Average enrollments for the second quarter of FY 2008 were
40,675, an increase of 51.2 percent over the second quarter of
FY 2007.
-- Operating income for the second quarter grew 94.1 percent to
$3.3 million compared with $1.7 million for the second quarter
of FY 2007. Operating margins improved by 80 basis points to
6.2 percent of revenue for the second quarter as compared to
5.4 percent for the same period in FY 2007. This was primarily
attributable to increased leverage of selling, administrative
and other operating expenses.
-- Pretax income increased 100 percent to $3.0 million compared
with the second quarter of fiscal year 2007.
-- Income tax expense for the second quarter of FY 2008 was $1.6
million. The second quarter tax rate of approximately 53
percent reflects permanent differences between taxable income
and book income in the second quarter as well as an adjustment
to bring year-to-date tax expenses to the annual estimated
level of 47 percent. Income tax expense that was recorded in
the second quarter of FY 2007 was less than $0.1 million as
the Company was able to offset income in that quarter with net
operating loss carry forwards.
-- Net income for second quarter was $1.4 million, down slightly
from the prior year, primarily due to the change in income tax
expense described above.
-- Diluted and basic net loss per share for the second quarter of
FY 2008 was $0.98. On a pro forma basis, excluding the impact
of preferred stock dividends and accretion, as well as
assuming the conversion of preferred stock at the beginning of
the second quarter, diluted net income per share for the
second quarter was $0.06.
-- EBITDA for the second quarter was $6.3 million, as compared to
EBITDA of $3.0 million for the same period in 2007. EBITDA as
a percentage of revenues increased to 11.5 percent from 9.4
percent for the same period in 2007.
John Baule, the Company's chief financial officer and chief
operating officer noted, "We are pleased that we have been able to
expand operating margins while continuing to invest in our products
and services and drive revenue growth."
For the six months ended December 31, 2007
-- Revenues for the first half of FY 2008 were $113.7 million,
representing an increase of $43.6 million, or 62.3 percent as
compared to revenues of $70.1 million for the first half of FY
2007.
-- Average enrollments for the first half of FY 2008 were 40,380,
an increase of 50.8 percent over the first half of FY 2007.
-- Operating income for the first half of FY 2008 grew 40.3
percent to $9.4 million, as compared with $6.7 million for the
first half of FY 2007.
-- Pretax income increased 36.2 percent to $8.7 million compared
with the first half of FY 2007.
-- Income tax benefit for the first half of FY 2008 was $5.6
million. The income tax provision for the first half of FY
2008 was $4.1 million or approximately 47 percent of pretax
income. This was offset by a $9.7 million tax benefit
recognized from net deferred tax assets that were fully
reserved in prior periods. Income tax expense was $0.2 million
for the first half of FY 2007 as the Company was able to
offset most of the income in that period with net operating
loss carry forwards.
-- Net income for the first half of FY 2008 was $14.2 million,
representing an increase of $8.0 million, or 129.9 percent, as
compared to net income of $6.2 million for the first half of
FY 2007. Net income as a percentage of revenues increased to
12.5 percent from 8.7 percent for the same period in FY 2007.
-- Diluted and basic net loss per share for the first half of FY
2008 was $0.27. On a pro forma basis, assuming the conversion
of preferred stock at the beginning of the six months ended
December 31, 2007 and excluding the impact of preferred stock
dividends and accretion, diluted net income per share for the
first half of FY 2008 was $0.62.
-- EBITDA for the first half of FY 2008 was $14.5 million,
representing an increase of 5.3 million, or 57.2 percent as
compared to EBITDA of $9.2 million for the same period in FY
2007.
Outlook
-- For full fiscal year 2008, the Company is forecasting revenues
of between $208 and $212 million, operating income of
approximately $9.8 - $10.4 million and depreciation and
amortization of $10.0 - $10.5 million.
-- The Company's estimated tax rate for fiscal year 2008 is 47
percent excluding the impact of the reversal of the deferred
tax asset valuation allowance of $9.7 million in the first
quarter of FY 2008.
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
February 14, 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 results of Q2 2008 and its outlook
for fiscal year 2008 during a conference call scheduled for February
15, 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
888-680-0869 (domestic) or 617-213-4854 (international) at 8:20 a.m.
(ET). The participant passcode is 25114098.
Participants may also pre-register for the conference call at
www.theconferencingservice.com/prereg/key.process?key=PJNBKVUFD.
A replay of the call will be available from February 15, 2008,
through February 23, 2008, at 888-286-8010 (domestic) or 617-801-6888
(international) passcode 76706126. 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)
December 31, June 30,
ASSETS 2007 2007
------------ ---------
Current assets
Cash and cash equivalents $68,723 $1,660
Accounts receivable, net of allowance of $733
and $589 at December 31, 2007 and June 30,
2007, respectively 45,982 15,455
Inventories, net 8,643 13,804
Current portion of deferred tax asset 3,919 --
Prepaid expenses and other current assets 1,656 1,245
------------ ---------
Total current assets 128,923 32,164
Property and equipment, net 24,597 17,234
Capitalized curriculum development costs, net 17,334 9,671
Deferred tax asset, net of current portion 760 --
Goodwill 2,551 --
Other assets, net 1,737 1,182
Intangible assets 439 250
Deposits and other assets 424 711
------------ ---------
Total assets $176,765 $61,212
============ =========
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS'
EQUITY (DEFICIT)
Current liabilities
Bank overdraft $-- $1,577
Line of credit -- 1,500
Accounts payable 7,574 6,928
Accrued liabilities 6,591 1,819
Accrued compensation and benefits 5,478 6,200
Deferred revenue 12,350 2,620
Current portion of capital lease obligations 5,905 2,780
Current portion of notes payable 198 192
------------ ---------
Total current liabilities 38,096 23,616
Deferred rent, net of current portion 1,690 1,684
Capital lease obligations, net of current
portion 8,072 3,974
Notes payable, net of current portion 94 189
------------ ---------
Total liabilities 47,952 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 December
31, 2007; 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 December
31, 2007; 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)
Preferred stock, par value $0.0001; 10,000,000
shares authorized; no shares issued or
outstanding at December 31, 2007 -- --
Common stock, par value $0.0001; 100,000,000
shares authorized; 27,391,929 and 2,041,604
shares issued and outstanding at December 31,
2007 and June 30, 2007, respectively 3 1
Additional paid-in capital 321,709 --
Accumulated deficit (192,899) (197,808)
------------ ---------
Total stockholders' equity (deficit) 128,813 (197,807)
------------ ---------
Total liabilities, redeemable convertible
preferred stock and stockholders' equity
(deficit) $176,765 $61,212
============ =========
K12 INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
Three Months Ended Six Months Ended
December 31, December 31,
------------------- -------------------
2007 2006 2007 2006
--------- --------- --------- ---------
Revenues $54,391 $32,356 $113,744 $70,099
--------- --------- --------- ---------
Cost and expenses
Instructional costs and
services 31,980 18,022 66,758 37,199
Selling, administrative, and
other operating expenses 16,609 11,030 32,649 22,415
Product development expenses 2,460 1,566 4,987 3,772
--------- --------- --------- ---------
Total costs and expenses 51,049 30,618 104,394 63,386
--------- --------- --------- ---------
Income from operations 3,342 1,738 9,350 6,713
Interest expense, net (389) (263) (693) (357)
--------- --------- --------- ---------
Net income before income tax
expense 2,953 1,475 8,657 6,356
Income tax benefit (expense) (1,565) (30) 5,553 (176)
--------- --------- --------- ---------
Net income 1,388 1,445 14,210 6,180
Dividends on preferred stock (1,395) (1,518) (3,066) (3,037)
Preferred stock accretion (5,633) (5,367) (12,193) (10,734)
--------- --------- --------- ---------
Net loss attributable to
common stockholders (5,640) (5,440) (1,049) (7,591)
========= ========= ========= =========
Net income loss attributable
to common stockholders per
share:
Basic $(0.98) $(2.72) $(0.27) $(3.80)
========= ========= ========= =========
Diluted $(0.98) $(2.72) $(0.27) $(3.80)
========= ========= ========= =========
Weighted average shares used
in computing per share
amounts(1):
Basic 5,777,767 1,999,106 3,910,676 1,998,979
========= ========= ========= =========
Diluted 5,777,767 1,999,106 3,910,676 1,998,979
========= ========= ========= =========
(1) The basic and diluted weighted average common shares outstanding
for the three and six months ended December 31, 2007 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 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Six Months Ended
December 31,
-----------------
2007 2006
-------- --------
Cash Flows from Operating Activities
Net income $14,210 $6,180
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization expense 5,180 2,533
Stock based compensation expense 657 88
Deferred income taxes (5,615) --
Provision for (reduction of) doubtful accounts 141 (955)
Provision for inventory obsolescence 31 304
Provision for (reduction of) student computer
shrinkage and obsolescence 149 (90)
Changes in assets and liabilities:
Accounts receivable (29,948) (14,518)
Inventories 5,131 4,219
Prepaid expenses and other current assets (411) (180)
Other assets 77 (255)
Deposits and other assets (146) 400
Accounts payable 560 1,014
Accrued liabilities 1,158 690
Accrued compensation and benefits (743) (1,589)
Deferred revenue 8,963 9,141
Deferred rent (188) 8
-------- --------
Net cash (used in) provided by operating activities (794) 6,990
-------- --------
Cash flows from investing activities
Purchase of property and equipment (3,167) (2,967)
Purchase of domain name (250) --
Cash paid in the acquisition of Power-Glide (119) --
Capitalized curriculum development costs (3,914) (4,677)
-------- --------
Net cash used in investing activities (7,450) (7,644)
-------- --------
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 (2,755) --
Net borrowings from revolving credit facility (1,500) --
Proceeds (payments on) from notes payable -- related
party -- (4,025)
Repayments for capital lease obligations (1,934) (259)
Payments on notes payable (88) --
Proceeds from exercise of stock options 74 --
Payment of cash dividend (6,406) --
Repayment of bank overdraft (1,577) --
-------- --------
Net cash provided by (used in) financing activities 75,307 (4,284)
-------- --------
Net change in cash and cash equivalents 67,063 (4,938)
-------- --------
Cash and cash equivalents, beginning of period 1,660 9,475
-------- --------
Cash and cash equivalents, end of period $68,723 $4,537
======== ========
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 to EBITDA:
(in thousands)
Three Months Ended Six Months Ended
December 31, December 31,
2007 2006 2007 2006
Net income $1,388 $1,445 $14,210 $6,180
Interest expense, net 389 263 693 357
Income tax (benefit) expense, net 1,565 30 (5,553) 176
Depreciation and amortization 2,928 1,309 5,180 2,533
-------- --------- ---------- ------
EBITDA $6,270 $3,047 $14,530 $9,246
================== =================
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 and six
months ended December 31, 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 and (iv) conversion of the preferred shares
to common shares as of the beginning of the period. 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
and six months ended December 31, 2007 as follows:
(In thousands, except share and per share amounts)
Three months ended
-------------------------------------
December 31, 2007
-------------------------------------
As Reported Adjustments Pro forma
------------ ------------ -----------
Net income $ 1,388 $ -- $ 1,388
Less preferred stock accretion 5,633 5,633
Less preferred stock dividends 1,395 1,395 --
------------ ------------ -----------
Net income (loss) available to
common stockholders $ (5,640) $ 7,028 $ 1,388
============ ============ ===========
Net income (loss) per common
share:
Basic $ (0.98) $ 0.06
Diluted $ (0.98) $ 0.06
Weighted average common shares
outstanding:
Basic 5,777,767 17,070,590 22,848,357
Diluted 5,777,767 18,421,168 24,198,935
Six months ended
-------------------------------------
December 31, 2007
-------------------------------------
As Reported Adjustments Pro forma
------------ ------------ -----------
Net income $ 14,210 $ -- $ 14,210
Less preferred stock accretion 12,193 12,193 --
Less preferred stock dividends 3,066 3,066 --
------------ ------------ -----------
Net income (loss) available to
common stockholders $ (1,049) $ 15,259 $ 14,210
============ ============ ===========
Net income (loss) per common
share:
Basic $ (0.27) $ 0.63
Diluted $ (0.27) $ 0.62
Weighted average common shares
outstanding:
Basic 3,910,676 18,475,133 22,385,809
Diluted 3,910,676 18,845,789 22,756,465
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'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.
K12 offers education solutions for students using an outstanding,
highly effective curriculum that enables mastery of core concepts and
skills for students of all abilities. The K12 program combines a
cognitive research-based curriculum with an individualized learning
approach for online schools and other educational applications.
More information can be found at www.K12.com
SOURCE: K12 Inc.
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