Q2 Revenues Increase 29 percent to $166.5 million on Continued Strong
Enrollment in Core Business and Contribution of Acquisitions Closed
During Past Year
Company Maintains Positive Outlook for 2012 Fiscal Year
HERNDON, Va.--(BUSINESS WIRE)--Feb. 7, 2012--
K12 Inc. (NYSE: LRN), a leading provider of proprietary,
technology-based curriculum, software and education services creating
individualized learning for students primarily in kindergarten through
12th grade, today announced its results for the second fiscal quarter
ended December 31, 2011.
Summary Financial Results
-
Revenues for second quarter FY 2012 grew to $166.5 million, an
increase of $37.5 million or 29.1 percent over the prior year, due to
organic revenue growth in our core business of providing curriculum,
technology and management services to K-12 schools and to acquisitions
completed in the past year. These acquisitions include the American
Education Company, International School of Berne and certain K-12
assets of Kaplan Virtual Education (“KVE”), which together added $10.4
million of the growth. Revenue was negatively impacted in the period
by adjustments related to potential state funding reductions totaling
over $8 million.
-
EBITDA for second quarter FY 2012 (see reconciliation below) was $21.8
million, a decrease of $2.5 million or 10.3 percent as compared to
$24.3 million for the prior year, reflecting the noted revenue
adjustments and increased instructional and general and administrative
expenses to support the growth in the core business. The primary
drivers of this increase in instructional and general and
administrative expenses were: personnel costs, including salaries,
benefits and incentive compensation, and professional fees including
student support center costs, and the ERP and CRM implementations. The
professional fees increases were partially offset by lower transaction
and merger integration expenses in the quarter. The capitalization
rate of spending on infrastructure, product development and software
development was lower this period due to timing and nature of the
projects, resulting in higher current period expense.
-
Operating income was $7.1 million, a decrease of $7.1 million or 50.0
percent as compared to $14.2 million for the prior year, reflecting
the factors described above plus an increase of $4.6 million in
depreciation and amortization due to new product launches, new system
implementations, systems releases, and transaction related purchase
accounting.
-
Net income to common and Series A shareholders was $4.2 million as
compared to $7.8 million in the prior year, a decrease of 46.2
percent, reflecting the factors described above. The decrease in net
income was primarily attributable to increased instructional costs,
general and administrative costs and product development costs
offsetting the increase in revenues year over year.
-
Diluted earnings per share were $0.11 as compared to $0.23 in the
prior year.
Review of Significant Business Activities
Ron Packard, Chief Executive Officer of K12 Inc., commented: “Despite
some challenges in the quarter, we saw healthy growth in revenue of
almost 30 percent across our business with most of it being organic and
the performance of our new initiatives. We are pleased that we did not
let the acquisitions distract us and our core business continues to
perform well and grow rapidly. K12 remains undeterred in its mission of
maximizing a child’s potential regardless of circumstance. We continue
to build great curriculum and manage schools while building the
infrastructure necessary to scale.”
-
We are delighted to serve so many more children as our average full
time enrollment for the second quarter 2012 has grown from
approximately 98,300 students to over 143,900 students in our three
main business groups in the past year (see table).
-
The Washington State Board of Education conferred upon the Washington
Virtual Academies a prestigious 2011 Washington Achievement Award.
-
Our private school business, which now serves students in 85
countries, is growing steadily, particularly our K12 International
Academy and Keystone Schools.
-
One year ago, we made an investment in Web International English, a
private-pay English language learning company in China. Since then,
Web’s performance has been strong and it has expanded to 103 learning
centers in 53 cities.
Mr. Packard concluded, “Looking ahead to the remainder of fiscal year
2012, we are encouraged by the strong growth this year in every part of
our business and maintain a positive outlook for the remainder of fiscal
year 2012.”
Financial Results for the Three Months ended December 31, 2011
(Second Quarter Fiscal Year 2012)
-
Revenues for the second quarter of FY 2012 were $166.5 million, an
increase of $37.5 million or 29.1 percent. This increase was primarily
due to organic revenue growth in our core schools business. In
addition, acquisitions contributed approximately $10.4 million to
revenue growth. Total revenue growth was supported by a combined 46.4
percent increase in enrollments in all K12 programs, but was
negatively impacted by revenue adjustments made to account for the
potential risk of state funding reductions.
-
Instructional costs and services expenses for the second quarter of FY
2012 were $100.9 million, an increase of $24.7 million or 32.4
percent. The overall increase in instructional costs and services
expenses remained relatively consistent as a percentage of revenue.
This increase includes expenses to operate and manage schools
including the Insight Schools acquired from KVE and newly launched
schools. In addition, costs to supply curriculum, books, educational
materials and computers to students increased $3.0 million.
-
Selling, administrative, and other operating expenses for the second
quarter of FY 2012 were $51.0 million, an increase of $15.8 million or
44.9 percent. The primary drivers of this increase were: personnel
costs, including salaries, benefits and incentive compensation;
professional fees including student support center costs and the ERP
and CRM implementations; and depreciation and amortization expenses.
Included in the increase is a significant expansion of our internal
institutional sales support and our external sales distribution
network. The professional fees increases were partially offset by
lower transaction and merger integration expenses in the quarter.
-
Product development expenses, including software development, for the
second quarter of FY 2012 were $7.6 million, an increase of $4.2
million or 123.5 percent over the same period in the prior year. The
increase is primarily due to the increase of preliminary design work
related to internal software development projects, new product
development projects and increased amortization costs. Due to timing
and nature of the projects, the capitalization rate during the period
was lower than historical levels, resulting in higher current period
expense.
-
EBITDA, a non-GAAP measure (see reconciliation below), for the second
quarter of FY 2012 was $21.8 million, a decrease of 10.3 percent.
EBITDA in the quarter has been impacted by certain revenue
adjustments, by increased instructional costs and selling and
administrative expenses including: personnel costs, which include
salaries, benefits and incentive compensation; student enrollment
counseling; and professional fees, particularly infrastructure
related. The professional fees increases were partially offset by
lower transaction and merger integration expenses in the quarter.
-
Operating income was $7.1 million for the second quarter of FY 2012 as
compared to operating income of $14.2 million for the same period in
the prior year, a decrease of $7.1 million or 50.0 percent.
Depreciation and amortization were $14.7 million, an increase of $4.6
million or 45.5 percent primarily due to investments in personnel,
curriculum, software licenses and systems to support growth and the
effects of transaction related purchase accounting.
-
Income tax expense was $3.0 million for the second quarter of FY 2012,
representing an effective tax rate of 43.5 percent. Income tax expense
for the second quarter of FY 2011 was $6.1 million, representing an
effective tax rate of 44.2 percent. The decrease in the tax rate is
primarily due to a decrease in non-deductible expenses in the current
period.
-
Net income attributable to common and Series A shareholders was $4.2
million as compared to a net income of approximately $7.8 million in
the prior year due to the factors mentioned above.
-
Diluted net income attributable to common stockholders per share was
$0.11 for the second quarter of FY 2012 as compared to $0.23 in the
prior year due to the factors described above, including the increase
in average number of shares outstanding compared to the same period
last year. Diluted net income per share reflects a pro rata allocation
of net income to Series A Special Stock.
Financial Results for the Six Months ended December 31, 2011 (First
Half of Fiscal Year 2012)
-
Revenues for the six months ending December 31, 2011 were $359.8
million, an increase of $95.9 million or 36.3 percent. This increase
was primarily due to organic revenue growth in our core schools
business. In addition, acquisitions contributed more than $26.2
million to revenue growth.
-
Instructional costs and services expenses for the six months ending
December 31, 2011 were $208.5 million, an increase of $57.2 million or
37.8 percent. This increase was primarily attributable to a $39.0
million increase in expenses to operate and manage schools including
the Insight Schools acquired from KVE and newly launched schools. In
addition, costs to supply curriculum, books, educational materials and
computers to students increased $7.5 million. As a percentage of
revenue, these costs increased slightly over the same period in the
prior year.
-
Selling, administrative, and other operating expenses for the six
months ending December 31, 2011 were $122.2 million, an increase of
$36.5 million or 42.6 percent. This increase was primarily
attributable to increases in: personnel costs, including salaries,
benefits and incentive compensation; strategic marketing and
advertising including brand awareness and student enrollment
counseling; third party commissions related to the Company’s
institutional sales; accounting and audit fees related to the
Company’s public filing and tax returns; investment in the
institutional sales organization and distribution network;
professional fees which included costs associated with the external
sales force and the ERP and CRM implementations; and depreciation and
amortization expense. These increases were partially offset by lower
transaction and merger integration expenses in the quarter.
-
Product development expenses for the six months ending December 31,
2011 were $13.8 million, an increase of $6.5 million or 89.0 percent
over the same period in the prior year. The increase is primarily due
to the increase of preliminary design work related to internal
software development projects, new product development projects and
increased amortization for the quarter. Due to timing and nature of
the projects, the capitalization rate during the period was lower than
historical levels, resulting in higher current period expense.
-
EBITDA, a non-GAAP measure (see reconciliation below), for the six
months ending December 31, 2011 was $43.0 million, an increase of 10.0
percent. EBITDA in the period has been impacted by $3.5 million of
transaction costs, merger integration, ERP implementation costs and
additional costs associated with the delay in our year end filing as
well as other factors mentioned above. In addition, losses from new
initiatives totaled $2.1 million during the period.
-
Operating income was $15.4 million for the six months ending December
31, 2011 as compared to operating income of $19.6 million for the same
period in the prior year, a decrease of $4.2 million or 21.4 percent.
Depreciation and amortization were $27.7 million, an increase of $8.2
million or 42.1 percent primarily due to investments in personnel,
curriculum and systems to support growth and the effects of
transaction related purchase accounting.
-
Income tax expense was $6.7 million for the six months ending December
31, 2011, representing an effective tax rate of 45.0 percent. Income
tax expense for the second quarter of FY 2011 was $9.1 million,
representing an effective tax rate of 48.1 percent. The decrease in
the tax rate is primarily due to a decrease in non-deductible expenses
in the current period.
-
Net income attributable to common and Series A shareholders was $8.8
million as compared to a net income of approximately $10.0 million in
the prior year due to the factors mentioned above.
-
Diluted net income attributable to common stockholders per share was
$0.23 for the six months ending December 31, 2011 as compared to $0.30
in the prior year due to the factors described above and the increase
in the average number of shares outstanding as compared to the prior
year period. Diluted net income per share reflects a pro rata
allocation of net income to Series A Special Stock.
Cash, Capital Expenditures and Capital Leases
-
As of December 31, 2011, the Company had cash and cash equivalents of
$133.9 million, reflecting a decrease of $59.2 million from June 30,
2011, due to a significant increase in accounts receivable; the
funding of the acquisition of the Kaplan/Insight Assets; and to the
investment in capital expenditures and product development.
-
Capital expenditures for the six months ended December 31, 2011 were
$21.4 million and was comprised of:
-
$14.9 million for property and equipment, including capitalized
software development, and
-
$6.5 million for capitalized curriculum.
-
Capital leases financed additional purchases of $19.5 million during
the six months ended December 31, 2011, primarily for computers and
software for students.
Enrollment Data
Our reported total average enrollments include students in Managed
Schools, students taking K12 curriculum or Aventa online programs
offered by school districts (Institutional Business), and students in
Private Schools. Students served through our Institutional Business and
Private School offerings may enroll in a single course. For better
comparability, these students are converted to full-time equivalents
(FTEs) on a four course basis, and the revenue associated with these
students is lower than those in the managed schools. We currently
exclude selected programs from our reported enrollment. For example, we
do not include students in our consumer channel as we do not monitor the
progress of these students in the same way as we do in other programs.
We typically sell our A+ curriculum (acquired with AEC) as a site
license. As these schools are not limited in the number of students who
may access our curriculum, we do not include these students in our
enrollment totals. We also exclude students from Capital Education,
Middlebury Interactive Languages and our classroom pilots.
|
|
Three Months Ending December 31,
|
|
|
Growth 2011 / 2010
|
|
|
Six Months Ending December 31,
|
|
|
Growth 2011 / 2010
|
|
|
2011
|
|
2010
|
|
|
Change
|
|
Change %
|
|
|
2011
|
|
2010
|
|
|
Change
|
|
Change %
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
K12 Average Enrollment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Managed Public Schools
|
|
105,070
|
|
71,850
|
|
|
33,220
|
|
46.2%
|
|
|
104,507
|
|
72,321
|
|
|
32,186
|
|
44.5%
|
Institutional Business
|
|
28,807
|
|
18,804
|
|
|
10,003
|
|
53.2%
|
|
|
28,941
|
|
19,354
|
|
|
9,587
|
|
49.5%
|
Private Schools
|
|
10,056
|
|
7,642
|
|
|
2,414
|
|
31.6%
|
|
|
9,882
|
|
6,950
|
|
|
2,932
|
|
42.2%
|
Total Average Enrollment
|
|
143,933
|
|
98,296
|
|
|
45,637
|
|
46.4%
|
|
|
143,330
|
|
98,625
|
|
|
44,705
|
|
45.3%
|
*In FY 2012, a program transitioned from a K12 district program to a K12
managed school. This program had approximately 2,000 and 1,000
enrollments for the first quarters of fiscal year 2012 and 2011,
respectively.
Certain totals may not add due to the effects of rounding.
NM — Not Meaningful
Fiscal Year 2012 Outlook
Based upon year-to-date results and Management’s outlook for the
remainder of the year, the Company is updating its previously announced
full year 2012 outlook:
-
Revenue of $680-$690 million
-
EBITDA of $85-$95 million after giving effect to:
-
Transaction, merger integration, system implementation and related
costs of $6 million to $7 million
-
Losses from start-up initiatives of $5 million to $6 million
-
Depreciation and amortization expense of $53 million to $57 million
-
Capital expenditures including capitalized curriculum, capitalized
software development, and property and equipment of approximately $45
million
-
Capitalized leases for student computers will exceed $20 million
-
Income tax rate of 44 percent to 46 percent
-
Due to the potential variability in depreciation and amortization from
changes in anticipated placed in service dates for curriculum,
software and other assets, the Company is not forecasting operating
income or net income at this time.
Special Note on Forward-Looking Statements
This press release contains certain forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. We
have tried, whenever possible, to identify these forward-looking
statements using words such as “anticipates,” “believes,” “estimates,”
“continues,” “likely,” “may,” “opportunity,” “potential,” “projects,”
“will,” “expects,” “plans,” “intends” and similar expressions to
identify forward looking statements, whether in the negative or the
affirmative. These statements reflect our current beliefs and are based
upon information currently available to us. Accordingly, such
forward-looking statements involve known and unknown risks,
uncertainties and other factors which could cause our actual results,
performance or achievements to differ materially from those expressed
in, or implied by, such statements. These risks, uncertainties, factors
and contingencies include, but are not limited to: our potential
inability to further develop, maintain and enhance our products and
brands; the reduction of per pupil funding amounts at the schools we
serve; reputation harm resulting from poor performance or misconduct by
operators in any school in our industry and in any school in which we
operate; challenges from virtual public school or hybrid school
opponents; failure of the schools we serve to comply with regulations
resulting in a loss of funding or an obligation to repay funds
previously received; 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 enter into new contracts or renew existing contracts
with schools; risks associated with entering into and executing mergers,
acquisitions and joint ventures; failure to successfully integrate
mergers, acquisitions and joint ventures; inability to recruit, train
and retain quality teachers and employees; uncertainty regarding our
ability to protect our proprietary technologies; risks of new, changing
and competitive technologies; increased competition in our industry; 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 6, 2012, 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 2012 financial results
during a conference call scheduled for Tuesday, February 7, 2012 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 and analysts should dial
866.783.2139 (domestic) or 857.350.1598 (international) at 8:50 a.m.
(ET). The participant passcode is 82802566.
A replay of the call will be available starting on February 7, 2012,
through February 13, 2012, at 888-286-8010 (domestic) or 617-801-6888
(international) passcode 44114987. It will also be archived at www.k12.com
in the Investor Relations section for 60 days.
Financial Statements
|
K12 INC. UNAUDITED CONDENSED CONSOLIDATED BALANCE
SHEETS
|
|
|
|
|
|
December 31, 2011
|
|
June 30, 2011
|
|
|
|
|
(In thousands, except share and per share data)
|
ASSETS
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
$
|
133,872
|
|
|
$
|
193,099
|
|
Restricted cash and cash equivalents
|
|
|
|
|
1,501
|
|
|
|
1,501
|
|
Accounts receivable, net of allowance of $2,501 and $1,777 at
December 31, 2011 and June 30, 2011, respectively
|
|
|
|
|
196,671
|
|
|
|
96,235
|
|
Inventories, net
|
|
|
|
|
20,203
|
|
|
|
30,554
|
|
Current portion of deferred tax asset
|
|
|
|
|
8,050
|
|
|
|
7,175
|
|
Prepaid expenses
|
|
|
|
|
13,825
|
|
|
|
10,424
|
|
Other current assets
|
|
|
|
|
14,310
|
|
|
|
9,111
|
|
Total current assets
|
|
|
|
|
388,432
|
|
|
|
348,099
|
|
Property and equipment, net
|
|
|
|
|
60,297
|
|
|
|
46,625
|
|
Capitalized software development costs, net
|
|
|
|
|
27,302
|
|
|
|
24,386
|
|
Capitalized curriculum development costs, net
|
|
|
|
|
56,149
|
|
|
|
55,619
|
|
Intangible assets, net
|
|
|
|
|
40,193
|
|
|
|
38,291
|
|
Goodwill
|
|
|
|
|
62,182
|
|
|
|
55,627
|
|
Investment in Web International
|
|
|
|
|
10,000
|
|
|
|
10,000
|
|
Deposits and other assets
|
|
|
|
|
3,297
|
|
|
|
3,448
|
|
Total assets
|
|
|
|
$
|
647,852
|
|
|
$
|
582,095
|
|
LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND EQUITY
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
Accounts payable
|
|
|
|
$
|
20,249
|
|
|
$
|
21,176
|
|
Accrued liabilities
|
|
|
|
|
17,011
|
|
|
|
14,126
|
|
Accrued compensation and benefits
|
|
|
|
|
13,662
|
|
|
|
13,086
|
|
Deferred revenue
|
|
|
|
|
52,154
|
|
|
|
21,907
|
|
Current portion of capital lease obligations
|
|
|
|
|
15,467
|
|
|
|
11,914
|
|
Current portion of notes payable
|
|
|
|
|
1,129
|
|
|
|
1,443
|
|
Total current liabilities
|
|
|
|
|
119,672
|
|
|
|
83,652
|
|
Deferred rent, net of current portion
|
|
|
|
|
5,294
|
|
|
|
4,698
|
|
Capital lease obligations, net of current portion
|
|
|
|
|
16,569
|
|
|
|
8,552
|
|
Notes payable, net of current portion
|
|
|
|
|
1,543
|
|
|
|
2,299
|
|
Deferred tax liability
|
|
|
|
|
15,509
|
|
|
|
9,604
|
|
Other long term liabilities
|
|
|
|
|
3,160
|
|
|
|
3,343
|
|
Total liabilities
|
|
|
|
|
161,747
|
|
|
|
112,148
|
|
Commitments and contingencies
|
|
|
|
|
|
|
Redeemable noncontrolling interest
|
|
|
|
|
17,200
|
|
|
|
17,200
|
|
Equity:
|
|
|
|
|
|
|
K12 Inc. stockholders’ equity
|
|
|
|
|
|
|
Common stock, par value $0.0001; 100,000,000 shares authorized;
36,381,336 and 35,927,452 shares issued and outstanding at
December 31, 2011 and June 30, 2011, respectively
|
|
|
|
|
4
|
|
|
|
4
|
|
Additional paid-in capital
|
|
|
|
|
519,487
|
|
|
|
512,181
|
|
Series A Special Stock, par value $0.0001; 2,750,000 issued and
outstanding at December 31, 2011 and June 30, 2011
|
|
|
|
|
63,112
|
|
|
|
63,112
|
|
Accumulated other comprehensive income
|
|
|
|
|
134
|
|
|
|
28
|
|
Accumulated deficit
|
|
|
|
|
(117,938
|
)
|
|
|
(126,704
|
)
|
Total K12 Inc. stockholders’ equity
|
|
|
|
|
464,799
|
|
|
|
448,621
|
|
Noncontrolling interest
|
|
|
|
|
4,106
|
|
|
|
4,126
|
|
Total equity
|
|
|
|
|
468,905
|
|
|
|
452,747
|
|
Total liabilities, redeemable noncontrolling interest and equity
|
|
|
|
$
|
647,852
|
|
|
$
|
582,095
|
|
See accompanying summary of accounting policies and notes to unaudited
condensed consolidated financial statements in Form 10-Q.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
K12 INC. UNAUDITED CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2011
|
|
|
|
2010
|
|
|
|
|
2011
|
|
|
|
2010
|
|
|
|
|
(In thousands, except share and per share data)
|
Revenues
|
|
|
$
|
166,500
|
|
|
$
|
129,002
|
|
|
|
$
|
359,830
|
|
|
$
|
263,873
|
|
Cost and expenses
|
|
|
|
|
|
|
|
|
|
|
Instructional costs and services
|
|
|
|
100,877
|
|
|
|
76,195
|
|
|
|
|
208,455
|
|
|
|
151,277
|
|
Selling, administrative, and other operating expenses
|
|
|
|
50,957
|
|
|
|
35,177
|
|
|
|
|
122,217
|
|
|
|
85,675
|
|
Product development expenses
|
|
|
|
7,574
|
|
|
|
3,435
|
|
|
|
|
13,798
|
|
|
|
7,346
|
|
Total costs and expenses
|
|
|
|
159,408
|
|
|
|
114,807
|
|
|
|
|
344,470
|
|
|
|
244,298
|
|
Income from operations
|
|
|
|
7,092
|
|
|
|
14,195
|
|
|
|
|
15,360
|
|
|
|
19,575
|
|
Interest expense, net
|
|
|
|
(236
|
)
|
|
|
(366
|
)
|
|
|
|
(457
|
)
|
|
|
(663
|
)
|
Income before income tax expense and noncontrolling interest
|
|
|
|
6,856
|
|
|
|
13,829
|
|
|
|
|
14,903
|
|
|
|
18,912
|
|
Income tax expense
|
|
|
|
(2,976
|
)
|
|
|
(6,119
|
)
|
|
|
|
(6,673
|
)
|
|
|
(9,050
|
)
|
Net income - K12 Inc.
|
|
|
|
3,880
|
|
|
|
7,710
|
|
|
|
|
8,230
|
|
|
|
9,862
|
|
Add net loss attributable to noncontrolling interest
|
|
|
|
285
|
|
|
|
129
|
|
|
|
|
536
|
|
|
|
175
|
|
Net income attributable to common stockholders, including
Series A stockholders
|
|
|
$
|
4,165
|
|
|
$
|
7,839
|
|
|
|
$
|
8,766
|
|
|
$
|
10,037
|
|
Net income attributable to common stockholders per share,
excluding Series A stockholders:
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
$
|
0.11
|
|
|
$
|
0.24
|
|
|
|
$
|
0.23
|
|
|
$
|
0.30
|
|
Diluted
|
|
|
$
|
0.11
|
|
|
$
|
0.23
|
|
|
|
$
|
0.23
|
|
|
$
|
0.30
|
|
Weighted average shares used in computing per share amounts:
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
35,755,685
|
|
|
|
30,565,683
|
|
|
|
|
35,692,761
|
|
|
|
30,454,724
|
|
Diluted
|
|
|
|
35,976,779
|
|
|
|
31,128,286
|
|
|
|
|
36,009,878
|
|
|
|
31,094,840
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying summary of accounting policies and 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,
|
|
|
|
|
|
2011
|
|
|
|
2010
|
|
|
|
|
|
(In thousands)
|
Cash flows from operating activities
|
|
|
|
|
|
|
Net income
|
|
|
|
$
|
8,230
|
|
|
$
|
9,862
|
|
Adjustments to reconcile net income to net cash (used
in)/provided by operating activities:
|
|
|
|
|
|
|
Depreciation and amortization expense
|
|
|
|
|
27,668
|
|
|
|
19,512
|
|
Stock based compensation expense
|
|
|
|
|
4,724
|
|
|
|
5,399
|
|
Excess tax benefit from stock based compensation
|
|
|
|
|
(1,232
|
)
|
|
|
(1,308
|
)
|
Deferred income taxes
|
|
|
|
|
6,433
|
|
|
|
8,027
|
|
Provision for (reduction of) doubtful accounts
|
|
|
|
|
329
|
|
|
|
282
|
|
Provision for inventory obsolescence
|
|
|
|
|
9
|
|
|
|
737
|
|
Provision for student computer shrinkage and obsolescence
|
|
|
|
|
393
|
|
|
|
19
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
Accounts receivable
|
|
|
|
|
(100,765
|
)
|
|
|
(61,629
|
)
|
Inventories
|
|
|
|
|
10,341
|
|
|
|
9,349
|
|
Prepaid expenses
|
|
|
|
|
(3,400
|
)
|
|
|
2,971
|
|
Other current assets
|
|
|
|
|
(5,199
|
)
|
|
|
(3,001
|
)
|
Deposits and other assets
|
|
|
|
|
151
|
|
|
|
(20
|
)
|
Accounts payable
|
|
|
|
|
(928
|
)
|
|
|
(3,127
|
)
|
Accrued liabilities
|
|
|
|
|
2,885
|
|
|
|
2,764
|
|
Accrued compensation and benefits
|
|
|
|
|
575
|
|
|
|
(5,766
|
)
|
Deferred revenue
|
|
|
|
|
29,906
|
|
|
|
18,845
|
|
Cash invested in restricted cash and cash equivalents
|
|
|
|
|
-
|
|
|
|
1,843
|
|
Deferred rent
|
|
|
|
|
413
|
|
|
|
2,308
|
|
Net cash (used in)/provided by operating activities
|
|
|
|
|
(19,467
|
)
|
|
|
7,067
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
Purchase of property, equipment and software development costs
|
|
|
|
|
(14,902
|
)
|
|
|
(13,297
|
)
|
Capitalized curriculum development costs
|
|
|
|
|
(6,469
|
)
|
|
|
(6,961
|
)
|
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
|
)
|
Purchase of Kaplan/Insight Assets
|
|
|
|
|
(12,641
|
)
|
|
|
-
|
|
Net cash used in investing activities
|
|
|
|
|
(34,012
|
)
|
|
|
(63,665
|
)
|
Cash flows from financing activities
|
|
|
|
|
|
|
Repayments on capital lease obligations
|
|
|
|
|
(7,884
|
)
|
|
|
(7,303
|
)
|
Repayments on notes payable
|
|
|
|
|
(1,069
|
)
|
|
|
(930
|
)
|
Borrowings from line of credit
|
|
|
|
|
-
|
|
|
|
15,000
|
|
Proceeds from exercise of stock options
|
|
|
|
|
2,760
|
|
|
|
2,911
|
|
Excess tax benefit from stock based compensation
|
|
|
|
|
1,232
|
|
|
|
1,308
|
|
Repurchase of restricted stock for income tax withholding
|
|
|
|
|
(580
|
)
|
|
|
(1,020
|
)
|
Payment of stock registration expense
|
|
|
|
|
(313
|
)
|
|
|
-
|
|
Net cash (used in)/provided by financing activities
|
|
|
|
|
(5,854
|
)
|
|
|
9,966
|
|
Effect of foreign exchange rate changes on cash and cash
equivalents
|
|
|
|
|
106
|
|
|
|
38
|
|
Net change in cash and cash equivalents
|
|
|
|
|
(59,227
|
)
|
|
|
(46,594
|
)
|
Cash and cash equivalents, beginning of period
|
|
|
|
|
193,099
|
|
|
|
81,751
|
|
Cash and cash equivalents, end of period
|
|
|
|
$
|
133,872
|
|
|
$
|
35,157
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying summary of accounting policies and notes to unaudited
condensed consolidated financial statements in Form 10-Q.
Non-GAAP Financial Measures
EBITDA
EBITDA consists of net income (loss), plus net interest expense, plus
income tax expense, minus income tax benefit, plus depreciation and
amortization and noncontrolling interest charges. 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.
The following table provides a reconciliation of net income to EBITDA.
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31,
|
|
|
Six Months Ended December 31,
|
|
|
|
|
2011
|
|
|
|
2010
|
|
|
|
|
2011
|
|
|
|
2010
|
|
|
|
|
(In thousands)
|
|
|
(In thousands)
|
Net income-K12 Inc.
|
|
|
$
|
4,165
|
|
|
$
|
7,839
|
|
|
|
$
|
8,766
|
|
|
$
|
10,037
|
|
Interest expense, net
|
|
|
|
236
|
|
|
|
366
|
|
|
|
|
457
|
|
|
|
663
|
|
Income tax expense
|
|
|
|
2,976
|
|
|
|
6,119
|
|
|
|
|
6,673
|
|
|
|
9,050
|
|
Depreciation and amortization
|
|
|
|
14,676
|
|
|
|
10,120
|
|
|
|
|
27,668
|
|
|
|
19,512
|
|
Noncontrolling interest
|
|
|
|
(285
|
)
|
|
|
(129
|
)
|
|
|
|
(536
|
)
|
|
|
(175
|
)
|
EBITDA
|
|
|
$
|
21,768
|
|
|
$
|
24,315
|
|
|
|
$
|
43,028
|
|
|
$
|
39,087
|
|
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 K12International AcademyTM, an accredited, diploma-granting
online private school.
Founded in 2000, K12 has provided over 2 million courses –
core subjects, AP®, 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.
K12 has also made a number of recent acquisitions including:
(i) 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®; (ii) The American Education
Corporation, a leading provider of instructional and assessment software
for kindergarten through adult learners; and (iii) certain assets of
Kaplan Virtual Education, which manages online public and private
schools for students in grades 6-12. K12 has also made a
strategic investment in Web International English, a leader in English
language training for thousands of students in China, and formed
Middlebury Interactive Languages, a joint venture with Middlebury
College, create and distribute innovative online language courses for
pre-college students.
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:
Harry Hawks, 703-483-7350
EVP/CFO
and Investor Relations
hhawks@k12.com
or
Press:
Jeff
Kwitowski, 703-483-7281
VP, Public Affairs
jkwitowski@k12.com