K12's Second Quarter Revenues up 20%, Operating Income Increases 138 PercentHERNDON, Va., Feb 05, 2010 (BUSINESS WIRE) -- 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 second quarter of fiscal year 2010.
Revenues for the second quarter of fiscal year 2010 (FY 2010) grew to
$93.2 million, an increase of 20.1 percent over the second quarter in
the prior year, primarily due to strong enrollment growth. EBITDA
increased 93.3 percent to $20.4 million for the second quarter of fiscal
year FY 2010 over the same quarter in the prior year. Net income - K12
Inc. for the quarter was $9.6 million as compared to Net income - K12
Inc. of $3.5 million in the same period in the prior year. Operating
income improved to $14.3 million, an increase of 137.7 percent compared
with the second quarter of fiscal year 2009 (FY 2009).
Ron Packard, Chief Executive Officer of K12 Inc., stated, "We are
obviously pleased with this record quarter. K12 is fortunate to have
talented and dedicated employees who have worked hard to increase
productivity and improve our cost structure. These efforts have allowed
us to improve our results while continuing to invest heavily in
curriculum, technology and services that will benefit our students."
For the three months ended December 31, 2009 (Second Quarter of
Fiscal Year 2010)
-
Revenues for the second quarter were $93.2 million, an increase of
$15.6 million or 20.1 percent, as compared to revenues of $77.6
million for the second quarter of FY 2009. Average enrollments for the
second quarter were 67,354, an increase of 22.3 percent over the
second quarter of FY 2009.
-
Operating income for the second quarter was $14.3 million, an increase
of $8.3 million or 137.7 percent, as compared to operating income of
$6.0 million for the second quarter of FY 2009. Operating margins
increased to 15.3 percent of revenue, representing a gross increase of
7.6 percentage points, as compared to 7.7 percent for the second
quarter of FY 2009.
-
Income tax expense for the second quarter was $4.4 million,
representing an effective tax rate of 31.4 percent. Income tax expense
for the second quarter of FY 2009 was $2.4 million.
-
Net income - K12 Inc. for the second quarter was $9.6 million as
compared to Net income - K12 Inc. of $3.5 million for the second
quarter of FY 2009.
-
Diluted net income attributable to common stockholders per share for
the second quarter was $0.32 as compared to diluted net income
attributable to common stockholders per share of $0.12 for the second
quarter of FY 2009.
-
EBITDA for the second quarter was $20.4 million, an increase of $9.8
million or 93.3 percent, as compared to EBITDA of $10.5 million for
the second quarter of FY 2009. EBITDA as a percentage of revenue
improved to 21.9 percent, representing a gross increase of 8.3
percentage points, as compared to 13.6 percent for the second quarter
of FY 2009.
For the six months ended December 31, 2009 (First Half of Fiscal Year
2010)
-
Revenues for the first half of FY 2010 were $199.5 million, an
increase of $33.3 million or 20.0 percent, as compared to revenues of
$166.2 million for the first half of FY 2009. Average enrollments for
the first half were 67,901, an increase of 22.6 percent over the first
half of FY 2009.
-
Operating income for the first half of FY 2010 was $27.0 million, an
increase of $11.8 million or 77.5 percent, as compared to operating
income of $15.2 million for the first half of FY 2009. Operating
margins increased to 13.5 percent of revenue, representing a gross
increase of 4.4 percentage points, as compared to 9.1 percent for the
first half of FY 2009.
-
Income tax expense for the first half of FY 2010 was $9.7 million,
representing an effective tax rate of 37.1 percent. Income tax expense
for the first half of FY 2009 was $6.2 million.
-
Net income - K12 Inc. for the first half of FY 2010 was $16.7 million
as compared to Net income - K12 Inc. of $9.4 million for the first
half of FY 2009.
-
Diluted net income attributable to common stockholders per share for
the first half of FY 2010 was $0.56 as compared to diluted net income
attributable to common stockholders per share of $0.32 for the first
half of FY 2009.
-
EBITDA for the first half of FY 2010 was $39.3 million, an increase of
$15.1 million or 62.6 percent, as compared to EBITDA of $24.2 million
for the first half of FY 2009. EBITDA as a percentage of revenue
improved to 19.7 percent, representing a gross increase of 5.2
percentage points, as compared to 14.5 percent for the first half of
FY 2009.
Cash and Capital Expenditures
-
As of December 31, 2009, the Company had cash and cash equivalents of
$48.0 million.
-
Capital expenditures for the first six months ended December 31, 2009
were $11.5 million, including $6.4 million for investments in
capitalized curriculum and $5.1 million in property and equipment. In
addition, the Company financed purchases of $10.2 million of computers
and software, primarily for use by students through capital leases.
FY 2010 Outlook
The Company is reconfirming the guidance issued on November 5, 2009 and
is forecasting for full fiscal year 2010 revenues of approximately $380
million to $390 million, operating income of approximately $27 million
to $31 million and EBITDA of approximately $56 million to $60 million.
In addition, the Company is forecasting for fiscal year 2010:
-
Net income - K12 Inc. of approximately $14.6 million to $17.1 million
-
Depreciation and amortization of approximately $28 million to $30
million
-
Non-cash stock compensation expense of approximately $6.0 million to
$6.5 million
-
Interest expense, net of interest income of approximately $1.0 million
to $1.2 million
-
Estimated tax rate of approximately 43 percent to 44 percent
-
Capital expenditures of approximately $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 February
5, 2010, 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 its second quarter 2010 financial results and
its outlook for fiscal year 2010 during a conference call scheduled for
Friday, February 5, 2010 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 866-356-3093
(domestic) or 617-597-5381 (international) at 8:20 a.m. (ET). The
participant passcode is 72006014.
A replay of the call will be available starting on February 5, 2010,
through February 12, 2010, at 888-286-8010 (domestic) or 617-801-6888
(international) passcode 67767351. It will also be archived at http://www.k12.com
in the investor relations section for 60 days.
The following table sets forth average enrollment data for each of
the periods indicated:
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
December 31, |
|
December 31, |
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
|
|
|
|
|
|
|
|
| Total Enrollments |
|
67,354
|
|
|
55,076
|
|
|
67,901
|
|
|
55,366
|
|
|
|
|
|
|
|
|
|
|
|
Managed Enrollments as percentage of total enrollments
|
|
85.0
|
%
|
|
85.3
|
%
|
|
85.2
|
%
|
|
85.3
|
%
|
|
Non-managed Enrollments as a percentage of total enrollments
|
|
15.0
|
%
|
|
14.7
|
%
|
|
14.8
|
%
|
|
14.7
|
%
|
|
Total enrollments
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
High School enrollments as a percentage of total enrollments
|
|
21.6
|
%
|
|
18.6
|
%
|
|
22.1
|
%
|
|
19.2
|
%
|
|
K-8 enrollments as a percentage of total enrollments
|
|
78.4
|
%
|
|
81.4
|
%
|
|
77.9
|
%
|
|
80.8
|
%
|
|
Total enrollments
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
K12 INC.
|
|
|
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
(in thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31, |
|
Six Months Ended December 31, |
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
|
|
|
|
|
|
|
|
| Revenues |
|
$
|
93,197
|
|
|
$
|
77,618
|
|
$
|
199,522
|
|
$
|
166,243
|
|
|
|
|
|
|
|
|
|
|
| Cost and expenses |
|
|
|
|
|
|
|
|
|
Instructional costs and services
|
|
|
51,589
|
|
|
|
50,312
|
|
|
109,682
|
|
|
104,733
|
|
|
Selling, administrative, and other operating expenses
|
|
|
24,899
|
|
|
|
18,887
|
|
|
58,226
|
|
|
41,722
|
|
|
Product development expenses
|
|
|
2,415
|
|
|
|
2,405
|
|
|
4,653
|
|
|
4,600
|
|
|
|
|
|
|
|
|
|
|
| Total costs and expenses |
|
|
78,903
|
|
|
|
71,604
|
|
|
172,561
|
|
|
151,055
|
|
|
|
|
|
|
|
|
|
|
| Income from operations |
|
|
14,294
|
|
|
|
6,014
|
|
|
26,961
|
|
|
15,188
|
|
| Interest expense, net |
|
|
(324
|
)
|
|
|
(264
|
)
|
|
(681
|
)
|
|
(157
|
)
|
|
|
|
|
|
|
|
|
|
| Income before income tax expense and noncontrolling interest |
|
|
13,970
|
|
|
|
5,750
|
|
|
26,280
|
|
|
15,031
|
|
| Income tax expense |
|
|
(4,381
|
)
|
|
|
(2,365
|
)
|
|
(9,749
|
)
|
|
(6,151
|
)
|
| Net income |
|
|
9,589
|
|
|
|
3,385
|
|
|
16,531
|
|
|
8,880
|
|
| Add net loss - noncontrolling interest |
|
|
49
|
|
|
|
135
|
|
|
190
|
|
|
554
|
|
|
|
|
|
|
|
|
|
|
| Net income - K12 Inc. |
|
$
|
9,638
|
|
|
$
|
3,520
|
|
$
|
16,721
|
|
$
|
9,434
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net income attributable to common stockholders per share: |
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.33
|
|
|
$
|
0.12
|
|
$
|
0.57
|
|
$
|
0.33
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.32
|
|
|
$
|
0.12
|
|
$
|
0.56
|
|
$
|
0.32
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in computing per share amounts:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
29,648,674
|
|
|
|
28,749,126
|
|
|
29,512,635
|
|
|
28,567,406
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
29,974,642
|
|
|
|
29,682,250
|
|
|
29,875,966
|
|
|
29,653,263
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| K12 INC. |
|
| UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS |
| (in thousands, except share and per share data) |
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
June 30, |
|
|
2009 |
|
2009 |
|
|
|
|
|
| ASSETS |
| Current assets |
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
48,030
|
|
$
|
49,461
|
|
|
Restricted cash and cash equivalents
|
|
|
2,501
|
|
|
2,500
|
|
|
Accounts receivable, net of allowance of $1,733 and $1,555 at
December 31, 2009 and June 30, 2009, respectively
|
|
|
100,095
|
|
|
52,532
|
|
|
Inventories, net
|
|
|
21,990
|
|
|
32,052
|
|
|
Current portion of deferred tax asset
|
|
|
4,796
|
|
|
3,888
|
|
|
Prepaid expenses
|
|
|
6,481
|
|
|
7,810
|
|
|
Other current assets
|
|
|
6,368
|
|
|
3,454
|
|
| Total current assets |
|
|
190,261
|
|
|
151,697
|
|
|
Property and equipment, net
|
|
|
43,591
|
|
|
37,860
|
|
|
Capitalized curriculum development costs, net
|
|
|
35,584
|
|
|
31,649
|
|
|
Deferred tax asset, net of current portion
|
|
|
6,661
|
|
|
14,619
|
|
|
Goodwill
|
|
|
1,825
|
|
|
1,825
|
|
|
Deposits and other assets
|
|
|
2,542
|
|
|
2,526
|
|
| Total assets |
|
$
|
280,464
|
|
$
|
240,176
|
|
|
|
|
|
|
|
| LIABILITIES AND EQUITY |
| Current liabilities |
|
|
|
|
|
Accounts payable
|
|
$
|
7,736
|
|
$
|
10,366
|
|
|
Accrued liabilities
|
|
|
6,260
|
|
|
7,329
|
|
|
Accrued compensation and benefits
|
|
|
5,124
|
|
|
8,291
|
|
|
Deferred revenue
|
|
|
19,600
|
|
|
3,389
|
|
|
Current portion of capital lease obligations
|
|
|
12,197
|
|
|
10,240
|
|
|
Current portion of notes payable
|
|
|
954
|
|
|
1,034
|
|
| Total current liabilities |
|
|
51,871
|
|
|
40,649
|
|
|
Deferred rent, net of current portion
|
|
|
2,164
|
|
|
1,699
|
|
|
Capital lease obligations, net of current portion
|
|
|
11,259
|
|
|
9,222
|
|
|
Notes payable, net of current portion
|
|
|
1,289
|
|
|
1,906
|
|
| Total liabilities |
|
|
66,583
|
|
|
53,476
|
|
|
|
|
|
|
| Commitments and contingencies |
|
|
|
|
| Equity: |
|
|
|
|
|
K12 Inc. stockholders' equity
|
|
|
|
|
|
Common stock, par value $0.0001; 100,000,000 shares authorized;
30,059,713 and 29,290,486 shares issued and outstanding at December
31, 2009 and June 30, 2009, respectively
|
|
|
3
|
|
|
3
|
|
|
Additional paid-in capital
|
|
|
353,954
|
|
|
343,304
|
|
|
Accumulated deficit
|
|
|
(144,300
|
)
|
|
(161,021
|
)
|
|
|
|
|
|
|
Total K12 Inc. stockholders' equity
|
|
|
209,657
|
|
|
182,286
|
|
|
Noncontrolling interest
|
|
|
4,224
|
|
|
4,414
|
|
| Total equity |
|
|
213,881
|
|
|
186,700
|
|
| Total liabilities and equity |
|
$
|
280,464
|
|
$
|
240,176
|
|
|
|
|
|
|
|
|
K12 INC.
|
|
| UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
| (in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended December 31, |
|
|
2009 |
|
2008 |
|
|
|
|
|
| Cash flows from operating activities |
|
|
|
|
|
Net income
|
|
$16,531
|
|
$8,880
|
| Adjustments to reconcile net income to net cash provided by (used
in) operating activities: |
|
|
|
|
|
Depreciation and amortization expense
|
|
12,313
|
|
8,973
|
|
Stock based compensation expense
|
|
3,478
|
|
1,263
|
|
Excess tax benefit from stock-based compensation
|
|
(2,194)
|
|
(4,046)
|
|
Deferred income taxes
|
|
9,243
|
|
6,086
|
|
Provision for doubtful accounts
|
|
178
|
|
(337)
|
|
Provision for inventory obsolescence
|
|
366
|
|
64
|
|
Reduction of student computer shrinkage and obsolescence reserve
|
|
(244)
|
|
30
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
Accounts receivable
|
|
(47,741)
|
|
(52,086)
|
|
Inventories
|
|
9,696
|
|
8,251
|
|
Prepaid expenses
|
|
1,330
|
|
(290)
|
|
Other current assets
|
|
(2,913)
|
|
(2,859)
|
|
Deposits and other assets
|
|
(33)
|
|
(1,180)
|
|
Accounts payable
|
|
(2,631)
|
|
(6,219)
|
|
Accrued liabilities
|
|
(1,068)
|
|
2,909
|
|
Accrued compensation and benefits
|
|
(3,167)
|
|
(5,396)
|
|
Deferred revenue
|
|
16,211
|
|
15,011
|
|
Deferred rent
|
|
465
|
|
24
|
| Net cash provided by (used in) operating activities |
|
9,820
|
|
(20,922)
|
| Cash flows from investing activities |
|
|
|
|
|
Purchase of property and equipment
|
|
(5,114)
|
|
(7,744)
|
|
Purchase of domain name
|
|
--
|
|
(16)
|
|
Capitalized curriculum development costs
|
|
(6,372)
|
|
(6,992)
|
| Net cash used in investing activities |
|
(11,486)
|
|
(14,752)
|
| Cash flows from financing activities |
|
|
|
|
|
Repayments on capital lease obligations
|
|
(6,245)
|
|
(3,837)
|
|
Proceeds from notes payable
|
|
--
|
|
3,130
|
|
Repayments on notes payable
|
|
(692)
|
|
(297)
|
|
Proceeds from noncontrolling interest contribution
|
|
--
|
|
5,000
|
|
Proceeds from exercise of stock options
|
|
4,928
|
|
6,322
|
|
Proceeds from exercise of stock warrants
|
|
50
|
|
--
|
|
Excess tax benefit from stock-based compensation
|
|
2,194
|
|
4,046
|
| Net cash provided by financing activities |
|
235
|
|
14,364
|
| Net change in cash and cash equivalents |
|
(1,431)
|
|
(21,310)
|
| Cash and cash equivalents, beginning of period
|
|
49,461
|
|
71,682
|
| Cash and cash equivalents, end of period
|
|
$48,030
|
|
$50,372
|
|
|
|
|
|
Non-GAAP Financial Measures
EBITDA
EBITDA consists of net income minus interest income, minus income tax
benefit, minus noncontrolling interest benefit, plus interest expense,
plus income tax expense, plus noncontrolling interest loss 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
|
|
Six Months Ended
|
|
|
December 31,
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
Net Income - K12 Inc.
|
|
$9,638
|
|
$3,520
|
|
$16,721
|
|
$9,434
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
324
|
|
264
|
|
681
|
|
157
|
|
|
|
|
|
|
|
|
|
|
Income tax expense, net
|
|
4,381
|
|
2,365
|
|
9,749
|
|
6,151
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interest, net of tax
|
|
(49)
|
|
(135)
|
|
(190)
|
|
(554)
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
6,080
|
|
4,526
|
|
12,313
|
|
8,973
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$20,374
|
|
$10,540
|
|
$39,274
|
|
$24,161
|
|
|
|
|
|
|
|
|
|
|
|
The following table provides a reconciliation of net income
to
EBITDA for the full year outlook:
|
|
|
|
|
|
|
(in millions)
|
|
|
|
|
|
|
Full Year FY 2010
Outlook
|
|
|
|
|
|
|
|
Low |
|
High |
|
|
|
|
|
|
Net Income - K12 Inc.
|
|
$
|
14.6
|
|
$
|
17.1
|
|
|
|
|
|
|
|
Interest expense (income), net
|
|
|
1.2
|
|
|
1.0
|
|
|
|
|
|
|
|
Income tax expense, net
|
|
|
12.2
|
|
|
13.1
|
|
|
|
|
|
|
|
Noncontrolling interest, net of tax
|
|
|
0.0
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
29.0
|
|
|
29.0
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
56.0
|
|
$
|
60.0
|
|
|
|
|
|
|
About K12
K12 Inc. (NYSE: LRN), a technology-based education company, is the
nation's largest provider of proprietary curriculum and online education
programs to students in kindergarten through high school. K12(R)
provides high quality, customized education solutions to school
districts, charter schools, and directly to families ranging from
individual courses to classroom and hybrid programs to full-time virtual
school programs.
Since K12 was founded in 1999, it has delivered over 1.5 million courses
to students worldwide. Over 60,000 students in twenty-five states are
enrolled in virtual schools operated by K12. The company also operates
the K12 International AcademyTM, an accredited, diploma-granting online
private school serving students in over 40 countries. More information
can be found at http://www.K12.com.
K12(R) is a registered trademark and the K12 logo, xPotential and
Unleash the xPotential are trademarks of K12 Inc.
SOURCE: K12 Inc.
K12 Inc.
Investor Contact:
Keith Haas
SVP, Finance and Investor Relations
703-483-7077
khaas@k12.com
or
Press Contact:
Jeff Kwitowski
VP, Public Relations
703-483-7281
jkwitowski@k12.com