Revenue increases 38.4 percent to $129 million
HERNDON, Va., Feb 09, 2011 (BUSINESS WIRE) --
K12 Inc. (NYSE: LRN), a leading provider of proprietary,
technology-based curriculum, software and education services created for
individualized learning for students in kindergarten through 12th grade,
today announced its results for the second fiscal quarter ended December
31, 2010.
Summary Financial Results
-
Revenues for the second quarter grew to $129.0 million, an increase of
38.4 percent over the second quarter in the prior year, primarily due
to strong enrollment growth and acquisitions.
-
EBITDA for the second quarter of fiscal year 2011 was $24.3 million,
an increase of 19.1 percent as compared to $20.4 million for the
second quarter in the prior year, reflecting in the current period:
-
M&A transaction, integration, and other one-time charges of $2.1
million, and
-
Startup losses attributable to new initiatives of $1.5 million
-
Operating income was $14.2 million, essentially flat with the second
quarter of fiscal year 2010 reflecting
-
Factors described above, and
-
Depreciation and amortization of $10.1 million, an increase of
$4.0 million primarily due to new product launches, systems
releases, and purchase accounting.
-
Net income to shareholders for the second quarter was $7.8 million as
compared to net income to shareholders of $9.6 million in the same
period in the prior year, a decrease of 18.7 percent.
-
Earnings per share are $0.23 as compared to $0.32 in the same period
in the prior year.
Review of Significant Business Activities
Ron Packard, Chief Executive Officer of K12 Inc., stated, "This was
another exciting quarter for K12. As a company, we achieved revenue
growth of over 38 percent, thanks to approximately 26 percent organic
growth plus 12 percent from our new acquisitions and initiatives. The
integration of KC Distance Learning (KCDL) that we acquired in our first
quarter continues on plan. Additionally, our private school business and
institutional sales business both continue to grow rapidly, exceeding
our expectations."
Effective December 1, 2010, we completed the acquisition of American
Education Corporation (AEC). The acquisition increases our portfolio of
innovative, high quality instructional and curriculum offerings. AEC has
a proven record of increasing student performance, narrowing achievement
gaps, and empowering educators with more personalized learning resources
and integrated, adaptive assessment tools.
On January 3, 2011, we completed our strategic investment in Web
International English (Web), marking our first significant initiative in
China. Web is a leader in English language training for thousands of
learners of all ages throughout China, including university students,
government workers, and employees of international companies. Web has a
network of 72 learning centers in 47 cities. It currently serves more
than 35,000 students. We are confident this investment will
simultaneously strengthen Web's ability to scale and provide a
distribution platform for K12's learning products in one of the world's
largest markets. Ron Packard added, "We believe the education market in
China is going to continue to grow rapidly and we are excited to have a
meaningful presence in this market."
We previously reported that we added new virtual schools in
Massachusetts and Michigan this past fall and we are very pleased to
report that we are adding a new virtual school in Louisiana.
Progress Report on New Initiatives
"As we reported last quarter, we are optimistic about our ability to
leverage our core competencies and strategic assets into other
distribution channels where we will be able to help even more students,"
stated Mr. Packard. Progress on those initiatives includes:
-
Middlebury Interactive Languages, our partnership with Middlebury
College is proceeding to build effective foreign language courses that
include the latest pedagogical and cognitive research on foreign
language instruction. Additionally, the language camps are expanding
into four new locations this summer to a total of eight sites around
the country.
-
Capital Education announced an important new partnership with Sierra
Nevada College offering an adult degree completion program, and has a
number of other opportunities in the pipeline.
-
Our joint venture with Blackboard has been well received and a number
of pilots should soon be underway.
-
George Washington University Online High School has already enrolled
its first students with a promising outlook for next fall.
For the three months ended December 31, 2010 (Second Quarter Fiscal
Year 2011)
-
Revenues for the second quarter were $129.0 million, an increase of
38.4 percent. Without the benefit of the recent acquisitions and new
initiatives, organic revenue growth was 25.6 percent. Excluding
acquisitions, enrollments in K12 public schools for the second quarter
were 81,083, an increase of 20.4 percent. In addition, enrollment in
private schools including the K12 International Academy increased by
91.9 percent. Enrollments in Aventa, iQ and Keystone acquired as part
of KCDL were 14,978 FTEs.
-
Instructional costs and services expenses for the second quarter of FY
2011 were $76.2 million, an increase of $24.6 million or 47.7 percent.
This increase was primarily attributable to a $16.9 million increase
in expenses to operate and manage schools including the programs
acquired with KCDL. Included in the $24.6 million increase in
instructional costs and services expenses are start-up and launch
expenses of $2.0 million for several new businesses and initiatives.
-
Selling, administrative, and other operating expenses for the second
quarter of FY 2011 were $35.2 million, an increase of $10.3 million or
41.3 percent. This increase is primarily attributable to personnel
costs including those acquired with KCDL and AEC; merger integration,
financial systems and process improvement costs; the effects of
purchase accounting; and M&A transaction expenses. Included in the
$10.3 million increase in selling, administrative, and other operating
expenses are start-up and launch expenses of $1.6 million for several
new businesses and initiatives.
-
Product development expenses for the second quarter of FY 2011 were
$3.4 million, an increase of 42.2 percent. The increase is primarily
attributable to initiatives to support Aventa curriculum acquired with
KCDL as well as the timing of new development projects.
-
EBITDA, a non-GAAP measure (see reconciliation), for the second
quarter of FY 2011 was $24.3 million, an increase of 19.3 percent.
Without the combined merger integration costs, transaction expenses,
and startup losses of $3.6 million described above, EBITDA would have
been $27.9 million.
-
Operating income was $14.2 million, essentially stable as compared to
$14.3 million for the second quarter of FY 2010. Without the combined
merger integration costs, transaction expenses, startup losses and
related depreciation and amortization of $3.9 million described above,
operating income would have been $18.1 million.
-
Income tax expense was $6.1 million, representing an effective tax
rate of 44.2 percent. Income tax expense for the second quarter of FY
2010 was $4.4 million, an effective tax rate of 31.4 percent. The
increase in the tax rate is primarily attributable to certain benefits
in the prior period and certain non-deductible transaction expenses in
the current period.
-
Net income - K12 Inc. was $7.8 million as compared to $9.6 million in
the second quarter of FY 2010, a decrease of 18.7 percent, due to the
factors mentioned above.
-
Diluted net income attributable to common stockholders per share was
$0.23 as compared to $0.32 in the second quarter of FY 2010, a
decrease of 28.1 percent, due to the factors mentioned above.
For the six months ended December 31, 2010 (First Half of Fiscal Year
2011)
-
Revenues for the six months ending December 31, 2010 were $263.9
million, an increase of 32.3 percent. Without the benefit of the
recent acquisitions and new initiatives, organic revenue growth was
22.7 percent. Excluding acquisitions, enrollments in K12 public
schools for the second quarter were 81,480, an increase of 20.0
percent over the second quarter of FY 2010. In addition, enrollment in
private schools including the K12 International Academy increased to
2,246 full time equivalents (FTEs), a growth rate of 122.0 percent. In
addition, enrollments in the Aventa, iQ and Keystone acquired during
the period were 14,898 FTEs.
-
Instructional costs and services expenses for the six months ending
December 31, 2010 were $151.3 million, an increase of $41.6 million or
37.9 percent. Included in the $41.6 million increase in instructional
costs and services expenses were start-up and launch expenses of $4.7
million for several new businesses and initiatives. Amortization of
curriculum and learning systems increased $5.0 million.
-
Selling, administrative, and other operating expenses for the six
months ending December 31, 2010 were $85.7 million, an increase of
$27.4 million or 47.1 percent. This increase is primarily attributable
to increases in: strategic marketing including brand awareness and
student recruitment, personnel costs including those acquired with
KCDL and AEC; and M&A transaction and integration costs and other
one-time items. Included in the $27.4 million increase in selling,
administrative, and other operating expenses are start-up and launch
expenses of $2.5 million for several new businesses and initiatives.
-
Product development expenses for the of FY 2011 for the six months
ending December 31, 2010 were $7.3 million, an increase of 57.9
percent.
-
EBITDA, a non-GAAP measure (see reconciliation), for the six months
ending December 31, 2010 was $39.1 million, a decrease of $0.2 million
or 0.5 percent, as compared to $39.3 million in the prior period.
Without the cumulative merger integration costs, transaction expenses,
and startup losses of $10.2 million, EBITDA would have been $49.3
million.
-
Operating income was $19.6 million for the six months ending December
31, 2010, a decrease of $7.4 million or 27.4 percent, as compared to
$27.0 million in the prior period. Without the cumulative merger
integration costs, transaction expenses, startup losses, and related
depreciation and amortization of $11.1 million, operating income would
have been $30.7 million.
-
Income tax expense was $9.1 million, representing an effective tax
rate of 47.9 percent. Income tax expense for the prior period was $9.7
million, an effective tax rate of 37.1 percent. The increase in the
tax rate is primarily attributable to certain benefits in the prior
period and certain non-deductible transaction expenses in the current
period.
-
Net income - K12 Inc. was $10.0 million as compared to $16.7 million
in the prior period, a decrease of 40.0 percent, due to the factors
described above.
-
Diluted net income attributable to common stockholders per share was
$0.30 as compared to $0.56 in the prior period, a decrease of 46.4
percent, due to the factors described above.
Cash, Capital Expenditures and Capital Leases
-
As of December 31, 2010, the Company had cash and cash equivalents of
$35.2 million reflecting a 26.7 percent decrease as compared to
December 31, 2009 primarily due to the recent investments in AEC and
Web.
-
Capital expenditures, including investment in core business revenue
and new initiatives totaled $20.3 million for the six months ended
December 31, 2010 and was comprised of:
-
$9.0 million for property and equipment, including $3.9 million
for enterprise software,
-
$7.0 million for capitalized curriculum, and
-
$4.3 million for capitalized software.
-
Capital leases were initiated for additional purchases of $12.9
million primarily for computers and software for students.
Fiscal Year 2011 Outlook
Based upon year-to-date results and Management's outlook for the
remainder of the year, the Company is providing the following update to
its full year 2011 outlook:
-
Revenues are forecast at $515 million to $520 million giving effect to
the acquisition of American Education Corporation.
-
EBITDA is forecast in excess of $72 million (see reconciliation),
reflecting
-
One-time charges estimated at $10 million due to transaction
costs, integration expenses, purchase accounting adjustments and
one-time expenses, and
-
Losses impacting EBITDA related to the launch of new initiatives
estimated at $5 million.
-
Without the $15 million in one-time charges and losses from new
initiatives, EBITDA would be over $87 million.
-
Operating income is forecast in excess $31 million, reflecting
-
Factors described above, and
-
Depreciation and amortization of $41 million to $42 million,
primarily due to new product launches, systems releases, and
purchase accounting.
-
Capital expenditures and capital leases for the full fiscal year are
forecast at $52 million to $54 million including:
-
Capital expenditures of $40 million
-
$30 million for capitalized software and curriculum
development including Middlebury Interactive Languages, and
-
$10 million for property and equipment including enterprise
software and the building of a second data center.
-
Capital leases of $14 million
-
Capital leases of $14 million primarily for computers and
software for students
-
Stock compensation expense is estimated at $10 million
-
Income tax rate is forecast at 47.5 percent, higher than a normative
rate due to the effects of transaction expenses and purchase
accounting.
-
Interest expense is forecast at $1.5 million.
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
9, 2011, 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 2011 financial results
during a conference call scheduled for Wednesday, February 9, 2011 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 866.383.8108
(domestic) or 617.597.5343 (international) at 8:20 a.m. (ET). The
participant passcode is 80681761.
A replay of the call will be available starting on February 9, 2011,
through February 16, 2011, at 888-286-8010 (domestic) or 617-801-6888
(international) passcode 22422996. It will also be archived at www.k12.com
in the Investor Relations section for 60 days.
Total Average Enrollment (FTEs)
The following tables set forth average enrollment data for each of the
periods indicated:
|
|
|
|
|
|
|
Total Average Enrollment |
|
|
|
Three months ending December 31,
|
|
Six months ending December 31,
|
|
|
|
|
2010
|
|
2009
|
|
Change
|
|
Change %
|
|
2010
|
|
2009
|
|
Change
|
|
Change %
|
K12 public schools
|
|
|
|
81,083
|
|
67,354
|
|
13,729
|
|
20.4
|
%
|
|
81,480
|
|
67,901
|
|
13,579
|
|
20.0
|
%
|
K12 private schools
|
|
|
|
2,235 |
|
1,165 |
|
1,070 |
|
91.9 |
% |
|
2,246 |
|
1,012 |
|
1,234 |
|
122.0 |
% |
K12 total |
|
|
|
83,318
|
|
68,519
|
|
14,799
|
|
21.6
|
%
|
|
83,726
|
|
68,913
|
|
14,813
|
|
21.5
|
%
|
iQ
|
|
|
|
3,128
|
|
n.a.
|
|
|
|
|
|
3,165
|
|
n.a.
|
|
|
|
|
Aventa
|
|
|
|
5,830
|
|
n.a.
|
|
|
|
|
|
5,680
|
|
n.a.
|
|
|
|
|
Keystone
|
|
|
|
6,020 |
|
n.a.
|
|
|
|
|
|
6,054 |
|
n.a.
|
|
|
|
|
Total acquired enrollment |
|
|
|
14,978 |
|
-
|
|
14,978 |
|
NM
|
|
|
14,899 |
|
-
|
|
14,898 |
|
NM
|
|
Total Average Enrollment |
|
|
|
98,296 |
|
68,519 |
|
29,777 |
|
43.5 |
% |
|
98,625 |
|
68,913 |
|
29,712 |
|
43.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
K12 INC. |
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS |
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
June 30, |
|
|
|
|
|
2010 |
|
|
|
2010 |
|
|
|
|
|
(In thousands, |
|
|
|
|
except share data) |
ASSETS |
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
$
|
35,157
|
|
|
$
|
81,751
|
|
Restricted cash and cash equivalents
|
|
|
|
|
1,500
|
|
|
|
3,343
|
|
Accounts receivable, net of allowance of $2,552 and $1,363 at
December 31, 2010 and June 30, 2010, respectively
|
|
|
|
|
142,486
|
|
|
|
71,184
|
|
Inventories, net
|
|
|
|
|
16,906
|
|
|
|
26,193
|
|
Current portion of deferred tax asset
|
|
|
|
|
4,678
|
|
|
|
4,672
|
|
Prepaid expenses
|
|
|
|
|
9,617
|
|
|
|
8,849
|
|
Other current assets
|
|
|
|
|
16,105 |
|
|
|
7,286 |
|
Total current assets |
|
|
|
|
226,449
|
|
|
|
203,278
|
|
Property and equipment, net
|
|
|
|
|
42,573
|
|
|
|
24,260
|
|
Capitalized software development costs, net
|
|
|
|
|
23,910
|
|
|
|
16,453
|
|
Capitalized curriculum development costs, net
|
|
|
|
|
50,642
|
|
|
|
39,860
|
|
Deferred tax asset, net of current portion
|
|
|
|
|
--
|
|
|
|
5,912
|
|
Intangible assets
|
|
|
|
|
40,005
|
|
|
|
14,081
|
|
Goodwill
|
|
|
|
|
53,531
|
|
|
|
1,825
|
|
Deposits and other assets
|
|
|
|
|
14,411 |
|
|
|
2,213 |
|
Total assets |
|
|
|
$ |
451,521 |
|
|
$ |
307,882 |
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES, SERIES A SPECIAL STOCK, REDEEMABLE NONCONTROLLING
INTEREST AND EQUITY
|
|
Current liabilities |
|
|
|
|
|
|
|
Accounts payable
|
|
|
|
$
|
14,825
|
|
|
$
|
12,691
|
|
Accrued liabilities
|
|
|
|
|
13,716
|
|
|
|
8,840
|
|
Accrued compensation and benefits
|
|
|
|
|
7,238
|
|
|
|
10,563
|
|
Deferred revenue
|
|
|
|
|
32,682
|
|
|
|
9,593
|
|
Current portion of capital lease obligations
|
|
|
|
|
13,736
|
|
|
|
10,996
|
|
Current portion of notes payable
|
|
|
|
|
974 |
|
|
|
1,251 |
|
Total current liabilities |
|
|
|
|
83,171
|
|
|
|
53,934
|
|
Deferred rent, net of current portion
|
|
|
|
|
3,813
|
|
|
|
1,782
|
|
Line of credit
|
|
|
|
|
15,000
|
|
|
|
--
|
|
Capital lease obligations, net of current portion
|
|
|
|
|
11,745
|
|
|
|
7,710
|
|
Notes payable, net of current portion
|
|
|
|
|
--
|
|
|
|
655
|
|
Deferred tax liability
|
|
|
|
|
9,596
|
|
|
|
--
|
|
Other long term liabilities
|
|
|
|
|
3,219 |
|
|
|
435 |
|
Total liabilities |
|
|
|
|
126,544 |
|
|
|
64,516 |
|
Commitments and contingencies |
|
|
|
|
|
|
|
Series A Special Stock |
|
|
|
|
63,112
|
|
|
|
--
|
|
Redeemable noncontrolling interest |
|
|
|
|
20,800
|
|
|
|
17,374
|
|
Equity: |
|
|
|
|
|
|
|
K12 Inc. stockholders' equity
|
|
|
|
|
|
|
|
Common stock, par value $0.0001; 100,000,000 shares authorized;
31,121,551 and 30,441,412 shares issued and outstanding at
December 31, 2010 and June 30, 2010, respectively
|
|
|
|
|
3
|
|
|
|
3
|
|
Additional paid-in capital
|
|
|
|
|
366,442
|
|
|
|
361,344
|
|
Accumulated other comprehensive income
|
|
|
|
|
38
|
|
|
|
--
|
|
Accumulated deficit
|
|
|
|
|
(129,459 |
)
|
|
|
(139,496 |
)
|
Total K12 Inc. stockholders' equity
|
|
|
|
|
237,024
|
|
|
|
221,851
|
|
Noncontrolling interest
|
|
|
|
|
4,041 |
|
|
|
4,141 |
|
Total equity |
|
|
|
|
241,065 |
|
|
|
225,992 |
|
Total liabilities, Series A special stock, redeemable
noncontrolling interest and equity |
|
|
|
$ |
451,521 |
|
|
$ |
307,882 |
|
|
|
|
|
|
|
|
|
|
|
|
See notes to unaudited condensed consolidated financial statements in
Form 10-Q.
|
|
|
|
|
|
|
K12 INC. |
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS |
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31, 2010
|
|
Six Months Ended December 31, 2010
|
|
|
|
|
|
2010 |
|
|
|
2009 |
|
|
|
2010 |
|
|
|
2009 |
|
|
|
|
|
(In thousands, except share and per share data) |
Revenues |
|
|
|
$ |
129,002 |
|
|
$ |
93,197 |
|
|
$ |
263,873 |
|
|
$ |
199,522 |
|
Cost and expenses |
|
|
|
|
|
|
|
|
|
|
Instructional costs and services
|
|
|
|
|
76,195
|
|
|
|
51,589
|
|
|
|
151,277
|
|
|
|
109,682
|
|
Selling, administrative, and other operating expenses
|
|
|
|
|
35,177
|
|
|
|
24,899
|
|
|
|
85,675
|
|
|
|
58,226
|
|
Product development expenses
|
|
|
|
|
3,435 |
|
|
|
2,415 |
|
|
|
7,346 |
|
|
|
4,653 |
|
Total costs and expenses |
|
|
|
|
114,807 |
|
|
|
78,903 |
|
|
|
244,298 |
|
|
|
172,561 |
|
Income from operations |
|
|
|
|
14,195
|
|
|
|
14,294
|
|
|
|
19,575
|
|
|
|
26,961
|
|
Interest expense, net |
|
|
|
|
(366 |
)
|
|
|
(324 |
)
|
|
|
(663 |
)
|
|
|
(681 |
)
|
Income before income tax expense and noncontrolling interest
|
|
|
|
|
13,829
|
|
|
|
13,970
|
|
|
|
18,912
|
|
|
|
26,280
|
|
Income tax expense |
|
|
|
|
(6,119 |
)
|
|
|
(4,381 |
)
|
|
|
(9,050 |
)
|
|
|
(9,749 |
)
|
Net income |
|
|
|
|
7,710
|
|
|
|
9,589
|
|
|
|
9,862
|
|
|
|
16,531
|
|
Add net loss attributable to noncontrolling interest |
|
|
|
|
129 |
|
|
|
49 |
|
|
|
175 |
|
|
|
190 |
|
Net income -- K12 Inc |
|
|
|
$ |
7,839 |
|
|
$ |
9,638 |
|
|
$ |
10,037 |
|
|
$ |
16,721 |
|
Net income attributable to common stockholders per share (see Note 3):
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
$ |
0.24 |
|
|
$ |
0.33 |
|
|
$ |
0.30 |
|
|
$ |
0.57 |
|
Diluted
|
|
|
|
$ |
0.23 |
|
|
$ |
0.32 |
|
|
$ |
0.30 |
|
|
$ |
0.56 |
|
Weighted average shares used in computing per share amounts: |
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
30,565,683 |
|
|
|
29,648,674 |
|
|
|
30,454,724 |
|
|
|
29,512,635 |
|
Diluted
|
|
|
|
|
31,128,286 |
|
|
|
29,974,642 |
|
|
|
31,094,840 |
|
|
|
29,875,966 |
|
|
|
|
|
|
|
|
|
|
|
|
See notes to unaudited condensed consolidated financial statements in
Form 10-Q.
|
|
|
|
|
K12 INC. |
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
|
|
|
|
|
|
|
|
|
Six Months Ended December 31,
|
|
|
|
|
|
2010 |
|
|
|
2009 |
|
|
|
|
|
(In thousands) |
Cash flows from operating activities |
|
|
|
|
|
|
Net income
|
|
|
|
$
|
9,862
|
|
|
$
|
16,531
|
|
Adjustments to reconcile net income to net cash provided by
operating activities: |
|
|
|
|
|
|
Depreciation and amortization expense
|
|
|
|
|
19,512
|
|
|
|
12,313
|
|
Stock based compensation expense
|
|
|
|
|
5,399
|
|
|
|
3,478
|
|
Excess tax benefit from stock-based compensation
|
|
|
|
|
(1,308
|
)
|
|
|
(2,194
|
)
|
Deferred income taxes
|
|
|
|
|
8,027
|
|
|
|
9,243
|
|
Provision for doubtful accounts
|
|
|
|
|
282
|
|
|
|
178
|
|
Provision for inventory obsolescence
|
|
|
|
|
737
|
|
|
|
366
|
|
Provision for (reduction of) student computer shrinkage and
obsolescence
|
|
|
|
|
19
|
|
|
|
(244
|
)
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
Restricted cash
|
|
|
|
|
1,843
|
|
|
|
--
|
|
Accounts receivable
|
|
|
|
|
(61,629
|
)
|
|
|
(47,741
|
)
|
Inventories
|
|
|
|
|
9,349
|
|
|
|
9,696
|
|
Prepaid expenses
|
|
|
|
|
2,971
|
|
|
|
1,330
|
|
Other current assets
|
|
|
|
|
(3,001
|
)
|
|
|
(2,913
|
)
|
Deposits and other assets
|
|
|
|
|
(20
|
)
|
|
|
(33
|
)
|
Accounts payable
|
|
|
|
|
(3,127
|
)
|
|
|
(2,631
|
)
|
Accrued liabilities
|
|
|
|
|
2,764
|
|
|
|
(1,068
|
)
|
Accrued compensation and benefits
|
|
|
|
|
(5,766
|
)
|
|
|
(3,167
|
)
|
Deferred revenue
|
|
|
|
|
18,845
|
|
|
|
16,211
|
|
Deferred rent
|
|
|
|
|
2,308 |
|
|
|
465 |
|
Net cash provided by operating activities |
|
|
|
|
7,067 |
|
|
|
9,820 |
|
Cash flows from investing activities |
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
|
|
(9,021
|
)
|
|
|
(596
|
)
|
Capitalized software development costs
|
|
|
|
|
(4,276
|
)
|
|
|
(4,518
|
)
|
Capitalized curriculum development costs
|
|
|
|
|
(6,961
|
)
|
|
|
(6,372
|
)
|
Purchase of AEC, net of cash acquired of $3,841
|
|
|
|
|
(24,542
|
)
|
|
|
--
|
|
Cash advanced for AEC performance escrow
|
|
|
|
|
(6,825
|
)
|
|
|
--
|
|
Cash paid for investment in Web
|
|
|
|
|
(10,000
|
)
|
|
|
--
|
|
Cash paid for other investment
|
|
|
|
|
(2,040 |
)
|
|
|
-- |
|
Net cash used in investing activities |
|
|
|
|
(63,665 |
)
|
|
|
(11,486 |
)
|
Cash flows from financing activities |
|
|
|
|
|
|
Repayments on capital lease obligations
|
|
|
|
|
(7,303
|
)
|
|
|
(6,245
|
)
|
Repayments on notes payable
|
|
|
|
|
(930
|
)
|
|
|
(692
|
)
|
Borrowings from line of credit
|
|
|
|
|
15,000
|
|
|
|
--
|
|
Proceeds from exercise of stock options
|
|
|
|
|
2,911
|
|
|
|
4,928
|
|
Proceeds from exercise of stock warrants
|
|
|
|
|
--
|
|
|
|
50
|
|
Excess tax benefit from stock-based compensation
|
|
|
|
|
1,308
|
|
|
|
2,194
|
|
Repurchase of restricted stock for income tax withholding
|
|
|
|
|
(1,020 |
)
|
|
|
Net cash provided by financing activities |
|
|
|
|
9,966 |
|
|
|
235 |
|
Effect of foreign exchange rate changes on cash and cash
equivalents |
|
|
|
|
38
|
|
|
|
--
|
|
Net change in cash and cash equivalents |
|
|
|
|
(46,594
|
)
|
|
|
(1,431
|
)
|
Cash and cash equivalents, beginning of period
|
|
|
|
|
81,751 |
|
|
|
49,461 |
|
Cash and cash equivalents, end of period
|
|
|
|
$ |
35,157 |
|
|
$ |
48,030 |
|
|
|
|
|
|
|
|
See notes to unaudited condensed consolidated financial statements in
Form 10-Q.
Non-GAAP Financial Measures
EBITDA
EBITDA consists of net income (loss), minus interest income, plus
interest expense, plus income tax expense, plus depreciation and
amortization, and minus noncontrolling interest loss. 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 in
addition to income from operations and net income 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 (loss) 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 capital expenditures, tax payments, interest payments, or other
working capital.
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 an additional measurement of operating performance because it
assists us in comparing our performance on a consistent basis;
-
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; and,
-
on an adjusted basis in determining compliance with the terms of our
credit agreement.
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
|
December 31,
|
|
December 31,
|
|
|
|
|
|
2010
|
|
|
|
2009
|
|
|
|
2010
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income - K12 Inc.
|
|
|
|
$
|
7,839
|
|
|
$
|
9,638
|
|
|
$
|
10,037
|
|
|
$
|
16,721
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
|
|
366
|
|
|
|
324
|
|
|
|
663
|
|
|
|
681
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense, net
|
|
|
|
|
6,119
|
|
|
|
4,381
|
|
|
|
9,050
|
|
|
|
9,749
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interest
|
|
|
|
|
(129
|
)
|
|
|
(49
|
)
|
|
|
(175
|
)
|
|
|
(190
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
10,120
|
|
|
|
6,080
|
|
|
|
19,512
|
|
|
|
12,313
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
|
|
$
|
24,315
|
|
|
$
|
20,374
|
|
|
$
|
39,087
|
|
|
$
|
39,274
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA Reconciliation for 2011 Outlook
|
|
|
|
(In millions)
|
|
|
|
|
|
Full Year 2011
|
|
|
Outlook |
|
|
|
|
|
|
Net Income - K12 Inc.
|
|
$
|
15.6
|
|
|
|
|
Interest expense, net
|
|
|
1.5
|
|
|
|
|
Income tax expense, net
|
|
|
14.1
|
|
|
|
|
Noncontrolling interest
|
|
|
(0.2
|
)
|
|
|
|
Depreciation and amortization
|
|
|
41.0
|
|
|
|
|
EBITDA
|
|
$
|
72.0
|
|
|
|
|
|
|
About K12 Inc.
K12 Inc. (NYSE: LRN), a technology-based education company, is the
largest provider of proprietary curriculum and online education programs
for students in kindergarten through high school in the U.S. K12
provides its curriculum and academic services to public and private
online schools, traditional classrooms, blended school programs, and
directly to families. K12 also operates the K12 International
AcademyTM, an accredited, diploma-granting online private
school serving students in 59 countries plus the U.S.
Founded in 2000, K12 has provided over 2 million courses -
core subjects, AP(R), world languages, credit recovery, and
electives - to more than 200,000 students worldwide. Over 90 percent of
parents surveyed are satisfied with the K12 program and agree
that their children have benefited academically with K12.
Students graduating from K12 virtual schools have been
accepted to hundreds of higher education institutions including many of
the nation's top-ranked colleges and universities.
In April 2010, K12 joined with Middlebury College to form a
new venture called Middlebury Interactive Languages to create and
distribute innovative online language courses for pre-college students.
In July 2010, K12 acquired KC Distance Learning, Inc., a
nationally recognized leader in online learning with brands that provide
high quality education products and online school solutions: Aventa
LearningTM, The KeystoneTM School and iQ Academies(R).
In November, K12 acquired American Education Corporation, a
leading provider of instructional and assessment software for
kindergarten through adult learners. In the same month, K12
also announced a strategic investment to acquire a minority interest in
Web International English, a leader in English language training for
thousands of students in China.
K12 is accredited through AdvancED, the world's largest
education community. More information on K12 can be found at: www.K12.com.

SOURCE: K12 Inc.
K12 Inc.
Investor:
Keith Haas, 703-483-7077
SVP, Finance and Investor Relations
khaas@k12.com
or
Press:
Jeff Kwitowski, 703-483-7281
VP, Public Relations
jkwitowski@k12.com