K12's Quarterly Revenue up 61 percent on Strong Enrollment Growth
HERNDON, Va.--(BUSINESS WIRE)--May 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
third quarter of its 2008 fiscal year.
Revenues for the quarter grew to $56.0 million, an increase of
60.8 percent over the third quarter of the previous year, primarily
due to strong enrollment growth. EBITDA for the third quarter of 2008
grew 88.1 percent over the prior year, increasing to $8.1 million from
$4.3 million. Net income for third quarter was $2.5 million,
representing an increase of $0.5 million, compared to net income of
$2.0 million in the prior year. Pretax income more than doubled to
$4.7 million for the third quarter compared with the third quarter of
fiscal year 2007.
"We are pleased with our third quarter financial results and
equally pleased with the favorable events this quarter that will aid
our long term growth. These events include the legislative action in
Wisconsin which will benefit all children in that state and the
approvals received in South Carolina and Hawaii by virtual public
schools who intend to offer the K12 curriculum," said Ron Packard,
chief executive officer of K12 Inc.
For the three months ended March 31, 2008
- Revenues increased by 60.8 percent for the third quarter of
fiscal year 2008 (FY 2008) over the same quarter last year due
to strong enrollment growth.
- Average enrollments for the third quarter of FY 2008 were
42,048, an increase of 50.7 percent over the third quarter of
FY 2007.
- Operating income for the third quarter grew to $4.4 million
compared with $2.2 million for the third quarter of FY 2007.
Operating margins increased to 7.8 percent of revenue for the
third quarter as compared to 6.3 percent for the same period
in FY 2007. This was primarily attributable to increased
leverage on selling, administrative and other operating
expenses.
- Pretax income increased 125.1 percent to $4.7 million compared
with the third quarter of fiscal year 2007.
- Income tax expense for the third quarter of FY 2008 was $2.2
million, or 47.5 percent of pretax income. Income tax expense
recorded in the third quarter of FY 2007 was less than $0.1
million as the Company utilized net operating loss
carry-forwards that were fully reserved for in prior periods.
- Net income for third quarter was $2.5 million, an increase of
21.1 percent, from $2.0 million in the prior year.
- Diluted net income per share for the third quarter of FY 2008
was $0.09.
- EBITDA for the third quarter was $8.1 million, an increase of
88.1 percent, compared to EBITDA of $4.3 million for the same
period in 2007. EBITDA as a percentage of revenues increased
to 14.4 percent from 12.3 percent for the same period in 2007.
John Baule, the Company's Chief Financial Officer and Chief
Operating Officer commented, "We are pleased that we were able to
increase enrollment levels this quarter, and at the same time leverage
our corporate infrastructure to expand EBITDA margins."
For the nine months ended March 31, 2008
- Revenues increased by 61.8 percent for the first nine months
of FY 2008 over the same period last year due to strong
enrollment growth.
- Average enrollments for the first nine months of FY 2008 were
41,095, an increase of 50.8 percent over the first nine months
of FY 2007.
- Operating income for the first nine months of FY 2008 grew
54.0 percent to $13.7 million, compared with $8.9 million for
the first nine months of FY 2007.
- Pretax income increased 58.1 percent to $13.3 million compared
with the first nine months of FY 2007.
- Income tax benefit for the first nine months of FY 2008 was
$3.3 million. The income tax provision for the first nine
months of FY 2008 was $6.4 million or 47.6 percent of pretax
income. This was offset by a $9.7 million tax benefit
recognized from net deferred tax assets that were fully
reserved for in prior periods. Income tax expense was $0.2
million for the first nine months of FY 2007 as the Company
was able to utilize net operating loss carry-forwards that
were fully reserved for in prior periods.
- Net income for the first nine months of FY 2008 was $16.7
million, representing an increase of $8.5 million, or 103.0
percent, compared to net income of $8.2 million for the first
nine months of FY 2007. Net income as a percentage of revenues
increased to 9.8 percent from 7.8 percent for the same period
in FY 2007.
- Diluted net income per share for the first nine months of FY
2008 was $0.11. On a pro forma basis, assuming the conversion
of preferred stock at the beginning of the nine months ended
March 31, 2008 and excluding the impact of preferred stock
dividends and accretion, diluted net income per share for the
first nine months of FY 2008 was $0.66.
- EBITDA for the first nine months of FY 2008 was $22.6 million,
an increase of 66.9 percent compared to EBITDA of $13.5
million for the same period in FY 2007.
- Capital expenditures for the first nine months of FY 2008
included $8.5 million for investments in capitalized
curriculum and $5.1 million in property and equipment. In
addition, the company financed purchases of $10.7 million of
computers and software, primarily for use by students, through
capital leases.
Outlook
- For full fiscal year 2008, the Company is forecasting revenues
of between $216 and $218 million, operating income of
approximately $10.1 - $10.5 million and depreciation and
amortization of approximately $12 million.
- The Company's estimated tax rate for fiscal year 2008 is 47.6
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 May 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 results of Q3 2008 and its outlook
for fiscal year 2008 during a conference call scheduled for May 9,
2008 at 9:00 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
888-679-8040 (domestic) or 617-213-4851 (international) at 8:50 a.m.
(ET). The participant passcode is 36845511.
Participants may also pre-register for the conference call at
https://www.theconferencingservice.com/prereg/key.process?key=
PRRHBPNX6 (Due to its length, this URL may need to be copied and
pasted into your Internet browser's address field. Remove the extra
space if one exists.).
A replay of the call will be available from May 9, 2008, through
May 16, 2008, at 888-286-8010 (domestic) or 617-801-6888
(international) passcode 92451653. 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)
March 31, June 30,
ASSETS 2008 2007
--------- ---------
Current assets
Cash and cash equivalents $66,966 $1,660
Accounts receivable, net of allowance of $721 and
$589 at March 31, 2008 and June 30, 2007,
respectively 45,554 15,455
Inventories, net 8,813 13,804
Current portion of deferred tax asset 951 --
Prepaid expenses and other current assets 1,284 1,245
--------- ---------
Total current assets 123,568 32,164
Property and equipment, net 25,233 17,234
Capitalized curriculum development costs, net 18,962 9,671
Deferred tax asset, net of current portion 1,560 --
Goodwill 2,550 --
Other assets, net 1,447 1,182
Intangible assets 390 250
Deposits and other assets 395 711
--------- ---------
Total assets $174,105 $61,212
========= =========
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS'
EQUITY (DEFICIT)
Current liabilities
Bank overdraft $-- $1,577
Line of credit -- 1,500
Accounts payable 6,445 6,928
Accrued liabilities 3,867 1,819
Accrued compensation and benefits 7,572 6,200
Deferred revenue 8,961 2,620
Current portion of capital lease obligations 6,056 2,780
Current portion of notes payable 170 192
--------- ---------
Total current liabilities 33,071 23,616
Deferred rent, net of current portion 1,694 1,684
Capital lease obligations, net of current portion 8,070 3,974
Notes payable, net of current portion 77 189
--------- ---------
Total liabilities 42,912 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 March 31, 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 March 31, 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; 27,726,850 and 2,041,604 shares issued
and outstanding at March 31, 2008 and June 30,
2007, respectively 3 1
Additional paid-in capital 321,629 --
Accumulated deficit (190,439) (197,808)
--------- ---------
Total stockholders' equity (deficit) 131,193 (197,807)
--------- ---------
Total liabilities, redeemable convertible
preferred stock and stockholders' equity
(deficit) $174,105 $61,212
========= =========
K12 INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
Three Months Ended Nine Months Ended
March 31, March 31,
---------------------- ----------------------
2008 2007 2008 2007
----------- ---------- ----------- ----------
Revenues $56,016 $34,831 $169,760 $104,930
----------- ---------- ----------- ----------
Cost and expenses
Instructional costs and
services 32,062 17,904 98,820 55,103
Selling, administrative,
and other operating
expenses 17,032 12,644 49,681 35,059
Product development
expenses 2,542 2,083 7,529 5,855
----------- ---------- ----------- ----------
Total costs and expenses 51,636 32,631 156,030 96,017
----------- ---------- ----------- ----------
Income from operations 4,380 2,200 13,730 8,913
Interest expense, net 309 (117) (383) (474)
----------- ---------- ----------- ----------
Net income before income
tax expense 4,689 2,083 13,347 8,439
Income tax benefit
(expense) (2,229) (51) 3,323 (227)
----------- ---------- ----------- ----------
Net income 2,460 2,032 16,670 8,212
Dividends on preferred
stock -- (1,670) (3,066) (4,707)
Preferred stock accretion -- (5,810) (12,193) (16,544)
----------- ---------- ----------- ----------
Net loss attributable to
common
stockholders $2,460 $(5,448) $1,411 $(13,039)
=========== ========== =========== ==========
Net income loss
attributable to common
stockholders per share:
Basic $0.09 $(2.72) $0.12 $(6.52)
=========== ========== =========== ==========
Diluted $0.09 $(2.72) $0.11 $(6.52)
=========== ========== =========== ==========
Weighted average shares
used in computing per
share amounts(1):
Basic 27,449,893 1,999,343 11,700,017 1,999,099
=========== ========== =========== ==========
Diluted 28,780,389 1,999,343 12,706,126 1,999,099
=========== ========== =========== ==========
(1) The basic and diluted weighted average common shares outstanding
for the three and nine months ended March 31, 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 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Nine Months Ended
March 31,
-----------------
2008 2007
-------- --------
Cash Flows from Operating Activities
Net income $16,670 $8,212
Adjustments to reconcile net income to net cash (used
in) provided by operating activities:
Depreciation and amortization expense 8,859 4,618
Stock based compensation expense 1,026 88
Deferred income taxes (3,447) --
Provision for (reduction of) doubtful accounts 129 (956)
Provision for inventory obsolescence 37 285
Provision for (reduction of) student computer
shrinkage and obsolescence 188 (90)
Changes in assets and liabilities:
Accounts receivable (29,508) (12,398)
Inventories 4,955 4,381
Prepaid expenses and other current assets (39) (400)
Other assets 87 (255)
Deposits and other assets (125) 221
Accounts payable (569) (827)
Accrued liabilities 739 (826)
Accrued compensation and benefits 1,352 (661)
Deferred revenue 5,575 5,866
Deferred rent 11 66
-------- --------
Net cash (used in) provided by operating activities 5,940 7,324
-------- --------
Cash flows from investing activities
Purchase of property and equipment (5,127) (3,807)
Purchase of domain name (250) --
Cash paid in the acquisition of Power-Glide (119) --
Capitalized curriculum development costs (8,544) (6,957)
-------- --------
Net cash used in investing activities (14,040) (10,764)
-------- --------
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 revolving credit facility (1,500) 1,500
Proceeds (payments on) from notes payable -- related
party -- (4,025)
Repayments for capital lease obligations (3,340) (676)
Payments on notes payable (134) (31)
Proceeds from exercise of stock options 96 12
Payment of cash dividend (6,406) --
Repayment of bank overdraft (1,577) --
Release of cash from restricted escrow account -- 2,332
-------- --------
Net cash provided by (used in) financing activities 73,406 (888)
-------- --------
Net change in cash and cash equivalents 65,306 (4,328)
-------- --------
Cash and cash equivalents, beginning of period 1,660 9,475
-------- --------
Cash and cash equivalents, end of period $66,966 $5,147
======== ========
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:
(thousands)
Three Months Ended Nine Months Ended
March 31, March 31,
2008 2007 2008 2007
Net income $2,460 $2,032 $16,670 $8,212
Interest income (expense), net 309 (117) (383) (474)
Income tax benefit (expense), net (2,229) (51) 3,323 (227)
Depreciation and amortization 3,679 2,085 8,859 4,618
------------------ -----------------
EBITDA $8,059 $4,285 $22,589 $13,531
================== =================
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
nine months ended March 31, 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 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 nine months ended March 31, 2008 as follows:
(In thousands, except share and per share amounts)
Three months ended
-----------------------------------
March 31, 2008
-----------------------------------
As Reported Adjustments Pro forma
-----------------------------------
Net income $ 2,460 $ 2,460
Less preferred stock accretion -- --
Less preferred stock dividends -- --
-----------------------------------
Net income available to common
stockholders $ 2,460 $ 2,460
===================================
Net income per common share:
Basic $ 0.09 $ 0.09
Diluted $ 0.09 $ 0.09
Weighted average common shares
outstanding:
Basic 27,449,893 27,449,893
Diluted 28,780,389 28,780,389
Nine months ended
-----------------------------------
March 31, 2008
-----------------------------------
As Reported Adjustments Pro forma
-----------------------------------
Net income $ 16,670 $ -- $ 16,670
Less preferred stock accretion 12,193 12,193 --
Less preferred stock dividends 3,066 3,066 --
-----------------------------------
Net income available to common
stockholders $ 1,411 $ 15,259 $ 16,670
===================================
Net income per common share:
Basic $ 0.12 $ 0.69
Diluted $ 0.11 $ 0.66
Weighted average common shares
outstanding:
Basic 11,700,017 12,361,543 24,061,560
Diluted 12,706,126 12,361,543 25,067,669
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 nine months ended March 31, 2007 as follows:
(In thousands, except share and per share amounts)
Three months ended
------------------------------------
March 31, 2007
------------------------------------
As Reported Adjustments Pro forma
------------------------------------
Net income $ 2,032 $ -- $ 2,032
Less preferred stock accretion 5,810 5,810 --
Less preferred stock dividends 1,670 1,670 --
------------------------------------
Net income (loss) available to
common stockholders $ (5,448) $ 7,480 $ 2,032
====================================
Net income (loss) per common
share:
Basic $ (2.72) $ 0.09
Diluted $ (2.72) $ 0.09
Weighted average common shares
outstanding:
Basic 1,999,343 19,879,411 21,878,754
Diluted 1,999,343 19,887,150 21,886,493
Nine months ended
------------------------------------
March 31, 2007
------------------------------------
As Reported Adjustments Pro forma
------------------------------------
Net income $ 8,212 $ -- $ 8,212
Less preferred stock accretion 16,544 16,544 --
Less preferred stock dividends 4,707 4,707 --
------------------------------------
Net income (loss) available to
common stockholders $ (13,039) $ 21,251 $ 8,212
====================================
Net income (loss) per common
share:
Basic $ (6.52) $ 0.38
Diluted $ (6.52) $ 0.38
Weighted average common shares
outstanding:
Basic 1,999,099 19,879,655 21,878,754
Diluted 1,999,099 19,886,688 21,885,787
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.
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.