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K12 Inc. Reports Fiscal 2016 Revenue of $872.7 Million

August 09, 2016

HERNDON, Va., Aug. 09, 2016 (GLOBE NEWSWIRE) -- K12 Inc. (NYSE:LRN), a technology-based education company and leading provider of proprietary curriculum and online school programs for students in pre-K through high school, today announced its results for the fourth fiscal quarter and full fiscal year ended June 30, 2016. 

Financial Highlights for the Three Months Ended June 30, 2016 (Fourth Quarter Fiscal Year 2016)

  • Revenues of $221.3 million, compared to $235.7 million in the fourth quarter of FY 2015.
  • Operating income of $0.5 million, compared to an operating loss of $16.3 million in the fourth quarter of FY 2015.
  • Net loss attributable to common stockholders of $1.0 million, compared to net loss of $11.6 million in the fourth quarter of FY 2015. 
  • Diluted net loss attributable to common stockholders per share of $0.03, compared to net loss of $0.31 in the fourth quarter of FY 2015. 
  • EBITDA, a non-GAAP measure (see reconciliation below), of $18.1 million, compared to $15.2 million in the fourth quarter of FY 2015.

Financial Highlights for the Year Ended June 30, 2016

  • Revenues of $872.7 million, compared to $948.3 million for the full fiscal year of 2015.
  • Operating income of $13.9 million, compared to $18.4 million for the full fiscal year of 2015.
  • Net income attributable to common stockholders of $9.0 million, compared to $11.0 million for the full fiscal year of 2015.
  • Diluted net income attributable to common stockholders per share was $0.23, compared to $0.29 for the full fiscal year of 2015.
  • EBITDA, a non-GAAP measure (see reconciliation below), of $82.1 million, compared to $102.2 million for the full fiscal year of 2015.

On July 8, 2016, K12 announced that it had reached a settlement with the State of California resolving all claims related to an Attorney General inquiry with no admission of liability or wrongdoing, and no fines or penalties.  K12 took a net charge during the fourth quarter of fiscal 2016 related to this settlement of $7.1 million.  The $7.1 million is comprised of: $2.6 million settlement payments; $6.0 million to defray the cost to taxpayers for the Attorney General's expenses related to its investigation of K12 Inc. as part of an industry-wide probe of for profit virtual schools; and a $1.5 million insurance reimbursement related to these events.

During the quarter ended June 30, 2015, the Company incurred charges totaling $28.4 million (products, software and inventory reserve of $14.3 million, accounts receivable reserves of $10.7 million, and severance costs of $3.4 million).

Excluding the impact of those charges, and the aforementioned net settlement costs, for the three months ended June 30, 2016 the comparisons to prior year results would have been as follows (see Appendix A, B and C below for more details).

  • Operating income of $7.6 million, compared to operating income of $8.9 million for the fourth quarter of FY 2015.
  • Net income attributable to common stockholders of $3.5 million, compared to net income of $6.8 million for the fourth quarter of FY 2015.
  • Diluted net income attributable to common stockholders per share of $0.09 as compared to diluted net income attributable to common stockholders per share of $0.18 for the fourth quarter of FY 2015.
  • EBITDA of $25.2 million, compared to the $26.6 million for the fourth quarter of FY 2015.

For the full year, excluding the impact of the aforementioned net settlement and charges, the comparisons to prior year results would have been as follows. (see Appendix A, B and C below for more details).

  • Operating income of $21.0 million compared to $43.7 million for the full fiscal year of 2015.
  • Net income attributable to common stockholders of $13.5 million compared to $29.4 million for the full fiscal year of 2015.
  • Diluted net income attributable to common stockholders per share would have been $0.35, compared to $0.78 for the full fiscal year of 2015.
  • EBITDA of $89.2 million compared to $113.6 million for the full fiscal year of 2015.

Comments from Management                         

“We continue to focus on improving academic outcomes for the students we serve,” said Stuart Udell, Chief Executive Officer.  “At the same time, we selectively invested in strategic growth areas, including expanding our state and school footprint, launching new program offerings, and executing on a strategic acquisition,” added Udell.

Cash, Capital Expenditures and Capital Leases

For the year ended June 30, 2016, the Company had cash and cash equivalents of $214.0 million, an increase of $18.1 million compared to the $195.9 million reported at June 30, 2015.

Capital expenditures for the year ended June 30, 2016 were $62.9 million, an increase of $1.1 million from the prior year’s full fiscal year, and was comprised of:

  • $5.0 million for property and equipment,
  • $36.3 million for capitalized software development, and
  • $21.6 million for capitalized curriculum

Capital leases financed additional purchases of $10.9 million during the year ended June 30, 2016, primarily for student computers.  This compares to capital leases financed during the year ended June 30, 2015 of $14.7 million.

Revenue and Enrollment Data

Revenue

The Company’s revenues are generally in three categories -- Managed Public School Programs (management, technology and academic support services provided to public schools), Institutional (Non-managed Public School Programs – curriculum, technology and other educational services where K12 does not provide primary administrative oversight, and Institutional Software and Services – educational software and services provided to school districts, public schools and other educational institutions), and Private Pay Schools and Other (private schools for which it charges student tuition and makes direct consumer sales) – The following table sets forth the Company’s revenues for the periods indicated:

               
  Three Months Ended   Change   Year Ended   Change
  June 30,   2016 / 2015   June 30,   2016 / 2015
($ in thousands)   2016     2015     $ %     2016     2015     $ %
                       
Managed Public School Programs (1) $ 183,426   $ 201,333     $ (17,907 )   -8.9 %   $ 717,059   $ 813,677     $ (96,618 )   -11.9 %
Institutional                                                       
Non-managed Public School Programs (1)   11,160     8,312       2,848     34.3 %     55,601     39,321       16,280     41.4 %
Institutional Software & Services   16,856     13,101       3,755     28.7 %     52,990     48,770       4,220     8.7 %
Total Institutional   28,016     21,413       6,603     30.8 %     108,591     88,091       20,500     23.3 %
Private Pay Schools and Other   9,877     12,909       (3,032 )   -23.5 %     47,050     46,526       524     1.1 %
Total $ 221,319   $ 235,655     $ (14,336 )   -6.1 %   $ 872,700   $ 948,294     $ (75,594 )   -8.0 %
                                                       

Enrollment Data

The following table sets forth average enrollment data for the periods indicated.  These figures exclude enrollments from classroom pilot programs and consumer programs.

   
  Three Months Ended 
June 30,
  2016 / 2015   Year Ended 
June 30,
  2016 / 2015  
   2016    2015    Change 
  Change % 
   2016     2015      Change
    Change % 
 
                                                 
Managed Public School Programs (1,2,3) 98,406   108,913     (10,507 )     -9.6 %   102,935   114,579     (11,644 )     -10.2 %  
Non-managed Public School Programs (1) 25,723   19,044     6,679       35.1 %   26,970   20,053     6,917       34.5 %  
             


  (1 ) If a school changes from a Managed to a Non-managed program, the corresponding enrollment classification would change in the period in which the contract arrangement changed.
  (2 ) Managed Public School Programs include enrollments for which K12 receives no public funding or revenue.
  (3 ) Managed Public School Program enrollments are lower than those reported in our historical average student enrollments for Managed Public Schools due to reclassifying certain schools that meet the current definition of Non-managed Programs.

Revenue per Enrollment Data

The following table sets forth revenue per average enrollment data for students in Public School Programs for the periods indicated.

               
  Three Months Ended   Change   Year Ended   Change
  June 30,   2016 / 2015   June 30,   2016 / 2015
    2016       2015     $   %     2016       2015     $   %
Managed Public School Programs $   1,864     $   1,849     $   15       0.8 %   $   6,966     $   7,101     $   (135 )     -1.9 %
Non-managed Public School Programs     434         436         (2 )     -0.5 %       2,062         1,961         101       5.2 %
                               

Fiscal Year 2017 Outlook

As previously disclosed, the Company will provide an outlook for fiscal 2017 results as part of the first quarter results report for fiscal year 2017.  This first quarter results is planned to be published at or near the end of October 2016.  No separate guidance communication, or enrollment counts, for fiscal 2017 will be provided before that 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: reduction of per pupil funding amounts at the schools we serve; inability to achieve sufficient levels of new enrollments to sustain or to grow our business model; failure of the schools we serve to comply with regulations resulting in a loss of funding or an obligation to repay funds previously received; declines or variations in academic performance outcomes as curriculum and testing standards evolve; harm to our reputation resulting from poor performance or misconduct by operators or us in any school in our industry and in any school in which we operate; legal and regulatory challenges from opponents of virtual public education, public charter schools or for-profit education companies; 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 school contracts or renew existing contracts, in part or in their entirety; unsuccessful integration of mergers, acquisitions and joint ventures; failure to further develop, maintain and enhance our technology, products, services and brands; inadequate recruiting, training and retention of effective teachers and employees; infringement  of our intellectual property; non-compliance with laws and regulations related to operating schools in a foreign jurisdiction; entry of new competitors with superior competitive technologies and lower prices; 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 August 9, 2016, 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 fourth quarter and full year fiscal year 2016 financial results during a conference call scheduled for Tuesday, August 9, 2016 at 8:30 a.m. eastern time (ET).

The conference call will be webcast and available at http://public.viavid.com/index.php?id=120283.  Please access the web site at least 15 minutes prior to the start of the call.

To participate in the live call, investors and analysts should dial (877) 407-4019 (domestic) or (201) 689-8337 (international) at 8:15 a.m. (ET). No passcode is required. 

A replay of the call will be available starting on August 9, 2016 at 11:00 a.m. ET through September 9, 2016 at 11:00 a.m. ET, at (877) 660-6853 (domestic) or (201) 612-7415 (international) using conference ID 13640973. A webcast replay of the call will be available at http://public.viavid.com/index.php?id=120283 for 30 days.

Financial Statements

The financial statements set forth below are not the complete set of K12 Inc.’s financial statements for the three months and full fiscal year ended June 30, 2016, and is presented below without footnotes. Readers are encouraged to obtain and carefully review K12 Inc.’s Form 10-K for the year ended June 30, 2016, including all financial statements contained therein and the footnotes thereto, filed with the SEC. The Form 10-K may be retrieved from the SEC's website at www.sec.gov or from K12 Inc.’s website at www.k12.com.

   
K12 INC.  
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS  
   
  June 30,   
    2016     2015    
  (In thousands, except share and per share data)  
ASSETS      
Current assets      
Cash and cash equivalents $ 213,989   $ 195,852    
Accounts receivable, net of allowance of $10,813 and $9,657 at June 30, 2016 and June 30, 2015, respectively   169,554     188,246    
Inventories, net   30,631     29,571    
Deferred tax asset   -     8,989    
Prepaid expenses   9,634     11,428    
Other current assets     22,047       24,877    
Total current assets   445,855     458,963    
Property and equipment, net   28,447     34,407    
Capitalized software, net   70,055     62,683    
Capitalized curriculum development costs, net   63,367     58,696    
Intangible assets, net   23,102     21,195    
Goodwill   87,285     66,160    
Deposits and other assets     15,944       6,495    
Total assets $ 734,055   $ 708,599    
LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND EQUITY        
Current liabilities      
Current portion of capital lease obligations $ 13,210   $ 16,635    
Accounts payable   25,919     29,819    
Accrued liabilities   26,877     12,486    
Accrued compensation and benefits   31,042     26,790    
Deferred revenue     25,964       24,927    
Total current liabilities   123,012     110,657    
Capital lease obligations, net of current portion   9,922     13,022    
Deferred rent, net of current portion   6,661     7,692    
Deferred tax liability   18,458     22,456    
Other long term liabilities     9,780       8,233    
Total liabilities   167,833     162,060    
Commitments and contingencies   -     -    
Redeemable noncontrolling interest     7,502       9,601    
Equity:              
K12 Inc. stockholders’ equity              
Common stock, par value $0.0001; 100,000,000 shares authorized; 43,184,068 and 41,837,894 shares issued and 39,681,470 and 38,335,296 shares outstanding at June 30, 2016 and June 30, 2015, respectively   4     4    
Additional paid-in capital   675,436     663,461    
Accumulated other comprehensive loss   (293 )   (1,065 )  
Accumulated deficit   (41,427 )   (50,462 )  
               
Treasury stock of 3,502,598 and 2,195,196 shares at cost at June 30, 2015 and June 30, 2014, respectively   (75,000 )   (75,000 )  
Total K12 Inc. stockholders’ equity   558,720     536,938    
Total liabilities, redeemable noncontrolling interest and equity $ 734,055   $ 708,599    
               

 

 
K12 INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
  Three Months Ended   Year Ended  
  June 30,   June 30,  
    2016       2015       2016     2015    
  (In thousands, except share and per share data)  
Revenues $ 221,319     $ 235,655     $ 872,700   $ 948,294    
Cost and expenses                              
Instructional costs and services   143,136       166,900       546,510     607,756    
Selling, administrative, and other operating expenses   76,606       80,756       302,205     307,730    
Product development expenses   1,067       4,317       10,071     14,381    
Total costs and expenses   220,809       251,973       858,786     929,867    
Income (Loss) from operations   510       (16,318 )     13,914     18,427    
Interest expense, net   (21 )     (3,158 )     (617 )   (3,291 )  
Income (Loss) before income tax expense and noncontrolling interest   489       (19,476 )     13,297     15,136    
Income tax expense   (822 )     6,901       (4,746 )   (5,810 )  
Net income (loss)   (333 )     (12,575 )     8,551     9,326    
Adjust net (income) loss attributable to noncontrolling interest   (649 )     995       484     1,662    
Net income (loss) attributable to common stockholders $ (982 )   $ (11,580 )   $ 9,035   $ 10,988    
Net income (loss) attributable to common stockholders per share                              
Basic $ (0.03 )   $ (0.31 )   $ 0.24   $ 0.29    
Diluted $ (0.03 )   $ (0.31 )   $ 0.23   $ 0.29    
Weighted average shares used in computing per share
  amounts:
                             
Basic   37,768,812       37,318,085       37,613,782     37,330,569    
Diluted   37,768,812       37,318,085       38,850,388     37,625,425    
                               

 

 
K12 INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
  Year Ended June 30, 
    2016       2015  
  (In thousands)
Cash flows from operating activities      
Net income $ 8,551     $ 9,326  
Adjustments to reconcile net income to net cash provided by operating activities:      
Depreciation and amortization expense   68,225       80,282  
Stock-based compensation expense   18,616       21,299  
Excess tax benefit from stock-based compensation   (6 )     (118 )
Deferred income taxes   (3,818 )     (3,094 )
Provision for doubtful accounts   4,610       9,300  
Provision for inventory obsolescence   691       1,406  
Provision for student computer shrinkage and obsolescence   (459 )     (430 )
Impairment loss on other assets   200       3,200  
Expensed computer peripherals   2,625       3,519  
Changes in assets and liabilities:      
Accounts receivable   14,463       (1,892 )
Inventories   (1,751 )     2,853  
Prepaid expenses   1,860       (4,073 )
Other current assets   2,830       (2,579 )
Deposits and other assets   (8,910 )     (1,440 )
Accounts payable   (3,900 )     (1,192 )
Accrued liabilities   15,497       (7,854 )
Accrued compensation and benefits   4,255       9,389  
Deferred revenue   636       621  
Deferred rent and other liabilities   (2,437 )     1,562  
Net cash provided by operating activities   121,778       120,085  
Cash flows from investing activities              
Purchases of property and equipment   (5,008 )     (9,928 )
Capitalized software development costs   (36,265 )     (33,755 )
Capitalized curriculum development costs   (21,627 )     (18,057 )
Acquisition of LearnBop Inc.   -       (6,512 )
Acquisition of LTS Education Systems, net of cash acquired   (19,953 )     -  
Net cash used in investing activities   (82,853 )     (68,252 )
Cash flows from financing activities              
Repayments on capital lease obligations   (17,402 )     (21,939 )
Purchase of treasury stock   -       (26,452 )
Proceeds from exercise of stock options   14       553  
Excess tax benefit from stock-based compensation   6       118  
Retirement of restricted stock for tax withholding   (3,394 )     (2,672 )
Net cash used in financing activities   (20,776 )     (50,392 )
Effect of foreign exchange rate changes on cash and cash equivalents   (12 )     (1,698 )
Net change in cash and cash equivalents   18,137       (257 )
Cash and cash equivalents, beginning of year    195,852       196,109  
Cash and cash equivalents, end of year  $ 213,989     $ 195,852  
               

Non-GAAP Financial Measures

EBITDA

EBITDA consists of net income plus net interest expense and other, plus income tax expense, minus income tax benefit, plus depreciation and amortization and non-controlling interest. Interest expense primarily consists of interest expense for capital leases. 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 as determined in accordance with GAAP. Not all companies use identical calculations for EBITDA, therefore 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; and
  • 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 tables provide a reconciliation of net income (loss) to EBITDA:

 
  Three Months Ended June 30,    Year Ended June 30, 
    2016     2015       2016     2015  
  (In thousands)   (In thousands)
Net income (loss) — K12 Inc.  $ (982 ) $ (11,580 )   $ 9,035   $ 10,988  
Interest income (expense), net and other   21     3,158       617     3,291  
Income tax expense (benefit)   822     (6,901 )     4,746     5,810  
Depreciation and amortization    17,603     31,528       68,225     83,801  
Net income (loss) attributable to noncontrolling interest    649     (995 )     (484 )   (1,662 )
EBITDA  $ 18,113   $ 15,210     $ 82,139   $ 102,228  
                           

Appendix

   
(A) The following summary table is provided as reference only and compares fourth quarter and full year 2016 results with the same periods in 2015 adjusted for the $7.1 million net settlement incurred in the fourth quarter of 2016, and the $28.4 million in charges incurred in fourth quarter of FY 2015.


               
  Three Months Ended   Change   Year Ended   Change
  June 30,   2016 / 2015   June 30,   2016 / 2015
($ in millions except per share amounts)   2016     2015     $ %     2016     2015     $ %
Operating Income $ 7.6   $ 8.9     $ (1.3 )   -14.6 %   $ 21.0   $ 43.7     $ (22.7 )   -51.9 %
                       
Net Income attributable to common and Series A stockholders $ 3.5   $ 6.8     $ (3.3 )   -48.5 %   $ 13.5   $ 29.4     $ (15.9 )   -54.1 %
                       
Diluted net income attributable to common stockholders per share, excluding Series A stockholders  $ 0.09   $ 0.18     $ (0.09 )   -50.0 %   $ 0.35   $ 0.78     $ (0.43 )   -55.1 %
                       
EBITDA $ 25.2   $ 26.6     $ (1.4 )   -5.3 %   $ 89.2   $ 113.6     $ (24.4 )   -21.5 %
                       


(B) The following tables are provided as reference only and adjust fourth quarter and full year 2016 results for the $7.1 million net settlement incurred in the fourth quarter of FY 2016.


     
  Three Months Ended June 30, 2016  
  Reported Results   Net
Settlement Impact
  Results
Excluding Settlement
  Reported Results   Results
Excluding Settlement
 
  (In thousands, except share and per share data)   (% of Revenue)  
Revenues  $ 221,319     $ -     $ 221,319       100.0 %     100.0 %  
Cost and expenses                                        
Instructional costs and services   143,136       -       143,136       64.7 %     64.7 %  
Selling, administrative, and other operating expenses   76,606       7,080       69,526       34.6 %     31.4 %  
Product development expenses   1,067       -       1,067       0.5 %     0.5 %  
Total costs and expenses    220,809       7,080       213,729       99.8 %     96.6 %  
Income (loss) from operations    510       (7,080 )     7,590       0.2 %     3.4 %  
Interest (expense), net and other   (21 )     -       (21 )     (0.0 %)     (0.0 %)  
Income (loss) before income tax expense and noncontrolling interest    489       (7,080 )     7,569       0.2 %     3.4 %  
Income tax (expense) benefit   (822 )     2,613       (3,435 )     (0.4 %)     (1.6 %)  
Net income (loss)   (333 )     (4,467 )     4,134       (0.2 %)     1.9 %  
Adjust net income attributable to noncontrolling interest    (649 )     -       (649 )     (0.3 %)     (0.3 %)  
Net income (loss) attributable to common stockholders $ (982 )   $ (4,467 )   $ 3,485       (0.4 %)     1.6 %  
Net income (loss) attributable to common stockholders per share                                        
Basic $ (0.03 )   $ (0.12 )   $ 0.09            
Diluted $ (0.03 )   $ (0.12 )   $ 0.09            
Weighted average shares used in computing per share
  amounts:
                   
Basic 37,768,812   37,768,812     37,768,812            
Diluted 37,768,812   37,768,812     37,768,812            


  Year Ended June 30, 2016
  Reported Results   Net
Settlement Impact
  Results
Excluding Settlement
  Reported Results   Results
Excluding Settlement
  (In thousands, except share and per share data)   (% of Revenue)
Revenues  $ 872,700     $ -     $ 872,700       100.0 %     100.0 %
Cost and expenses                  
Instructional costs and services   546,510       -       546,510       62.6 %     62.6 %
Selling, administrative, and other operating expenses   302,205       7,080       295,125       34.6 %     33.8 %
Product development expenses   10,071       -       10,071       1.2 %     1.2 %
Total costs and expenses    858,786       7,080       851,706       98.4 %     97.6 %
Income (loss) from operations    13,914       (7,080 )     20,994       1.6 %     2.4 %
Interest (expense), net and other   (617 )     -       (617 )     (0.1 %)     (0.1 %)
Income (loss) before income tax expense and noncontrolling interest    13,297       (7,080 )     20,377       1.5 %     2.3 %
Income tax (expense) benefit   (4,746 )     2,613       (7,359 )     (0.5 %)     (0.8 %)
Net income (loss)   8,551       (4,467 )     13,018       1.0 %     1.5 %
Adjust net loss attributable to noncontrolling interest    484       -       484       0.1 %     0.1 %
Net income (loss) attributable to common stockholders $ 9,035     $ (4,467 )   $ 13,502       1.0 %     1.5 %
Net income (loss) attributable to common stockholders per share                                      
Basic $ 0.24     $ (0.12 )   $ 0.36          
Diluted $ 0.23     $ (0.11 )   $ 0.35          
Weighted average shares used in computing per share amounts:                                      
Basic 37,613,782   37,613,782     37,613,782          
Diluted 38,850,388   38,850,388     38,850,388          


(C) During the quarter ended June 30, 2015, the Company incurred the following charges totaling $28.4 million of which $0.5 million were cash charges.
  Reserves and write downs related to end of life products, software and inventory of $14.3 million.
  Incremental accounts receivable reserves of $10.7 million, primarily related to closed schools, a funding deficit in one state and the interest on a receivable.
  Severance costs of $3.4 million.
   
  The following tables are provided as reference only and adjust fourth quarter and full year 2015 results for the removal of $28.4 million charges incurred in the fourth quarter of FY 2015.
         

The following tables are provided as reference only and adjust fourth quarter and full year 2015 results for the removal of $28.4 million charges incurred in the fourth quarter of FY 2015.

  Three Months Ended June 30, 2015  
  Reported Results   Specific Charges   Results
Excluding Charges
  Reported Results   Results
Excluding Charges
 
  (In thousands, except share and per share data)   (% of Revenue)  
Revenues  $ 235,655     $ -     $ 235,655       100.0 %     100.0 %  
Cost and expenses                    
Instructional costs and services   166,900       9,565       157,335       70.8 %     66.8 %  
Selling, administrative, and other operating expenses   80,756       15,670       65,086       34.3 %     27.6 %  
Product development expenses   4,317       -       4,317       1.8 %     1.8 %  
Total costs and expenses    251,973       25,235       226,738       106.9 %     96.2 %  
Income (loss) from operations    (16,318 )     (25,235 )     8,917       (6.9 %)     3.8 %  
Realized gain on sale of assets   -       -       -       0.0 %     0.0 %  
Interest (expense), net and other   (3,158 )     (3,200 )     42       (1.3 %)     0.0 %  
Income (loss) before income tax expense and noncontrolling interest    (19,476 )     (28,435 )     8,959       (8.3 %)     3.8 %  
Income tax (expense) benefit   6,901       10,006       (3,105 )     2.9 %     (1.3 %)  
Net income (loss)   (12,575 )     (18,429 )     5,854       (5.3 %)     2.5 %  
Adjust net loss attributable to noncontrolling interest    995       -       995       0.4 %     0.4 %  
Net income (loss) attributable to common stockholders $ (11,580 )   $ (18,429 )   $ 6,849       (4.9 %)     2.9 %  
Net income (loss) attributable to common stockholders per share                                        
Basic $ (0.31 )   $ (0.49 )   $ 0.18                    
Diluted $ (0.31 )   $ (0.49 )   $ 0.18            
Weighted average shares used in computing per share amounts:                                        
Basic 37,318,085   37,318,085     37,318,085            
Diluted 37,318,085   37,318,085     37,318,085            


  Year Ended June 30, 2015  
  Reported Results   Specific Charges   Results
Excluding Charges
  Reported Results   Results
Excluding Charges
 
  (In thousands, except share and per share data)   (% of Revenue)  
Revenues  $ 948,294     $ -     $ 948,294       100.0 %     100.0 %  
Cost and expenses                    
Instructional costs and services   607,756       9,565       598,191       64.1 %     63.1 %  
Selling, administrative, and other operating expenses   307,730       15,670       292,060       32.5 %     30.8 %  
Product development expenses   14,381       -       14,381       1.5 %     1.5 %  
Total costs and expenses    929,867       25,235       904,632       98.1 %     95.4 %  
Income (loss) from operations    18,427       (25,235 )     43,662       1.9 %     4.6 %  
Realized gain on sale of assets   -       -       -       0.0 %     0.0 %  
Interest (expense), net and other   (3,291 )     (3,200 )     (91 )     (0.3 %)     (0.0 %)  
Income (loss) before income tax expense and noncontrolling interest    15,136       (28,435 )     43,571       1.6 %     4.6 %  
Income tax (expense) benefit   (5,810 )     10,006       (15,816 )     (0.6 %)     (1.7 %)  
Net income (loss)   9,326       (18,429 )     27,755       1.0 %     2.9 %  
Adjust net loss attributable to noncontrolling interest    1,662       -       1,662       0.2 %     0.2 %  
Net income (loss) attributable to common stockholders $ 10,988     $ (18,429 )   $ 29,417       1.2 %     3.1 %  
Net income (loss) attributable to common stockholders per share                                        
Basic $ 0.29     $ (0.49 )   $ 0.79            
Diluted $ 0.29     $ (0.49 )   $ 0.78            
Weighted average shares used in computing per share
  amounts:
                                       
Basic 37,330,569   37,330,569     37,330,569            
Diluted 37,625,425   37,625,425     37,625,425            
                         

About K12 Inc.

K12 Inc. (NYSE:LRN) is driving innovation and advancing the quality of education by delivering state-of-the-art, digital learning platforms and technology to students and school districts across the globe. K12’s award winning curriculum serves over 2,000 schools and school districts and has delivered more than four million courses over the past decade. K12 is a company of educators with the nation's largest network of K-12 online school teachers, providing instruction, academic services, and learning solutions to public schools and districts, traditional classrooms, blended school programs, and directly to families. The K12 program is offered through K12 partner public schools in approximately two-thirds of the states and the District of Columbia, and through private schools serving students in all 50 states and more than 100 countries.  More information can be found at K12.com.

K12 Inc.
Investor and Press Contact:
Mike Kraft, 571-353-7778
VP Finance
mkraft@k12.com

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