UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): |
May 10, 2011 |
K12 Inc. |
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(Exact name of registrant as specified in its charter) |
Delaware |
001-33883 |
95-4774688 |
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(State or other jurisdiction of incorporation) |
(Commission File Number) |
(I.R.S. Employer Identification No.) |
2300 Corporate Park Drive, Herndon, |
20171 |
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(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code: | (703) 483-7000 |
Not Applicable |
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Former name or former address, if changed since last report |
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
[ ] Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
[ ] Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[ ] Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
[ ] Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
Item 2.02 Results of Operations and Financial Condition.
On May 10, 2011, K12 Inc. issued a press release reporting results for its third quarter of fiscal year 2011. A copy of this release is attached and incorporated by reference.
Item 9.01 Financial Statements and Exhibits.
Press Release dated May 10, 2011 of K12 Inc.
Disclaimer
Internet addresses in the release are for information purposes only and
are not intended to be hyperlinks to other K12 Inc. information.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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K12 Inc. |
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May 10, 2011 |
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By: /s/ Ronald J. Packard |
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Name: |
Ronald J. Packard |
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Title: |
Chief Executive Officer (Principal Executive Officer) |
Exhibit Index
Exhibit No. | Description | |
99.1 | Press Release of K12 Inc. dated May 10, 2011 |
Exhibit 99.1
K12 Inc. Reports Third Quarter 2011 Results and Reaffirms Prior FY 2011 Outlook
Revenues Increase 35 percent to $130 million on Strong Enrollment Growth
HERNDON, Va.--(BUSINESS WIRE)--May 10, 2011--K12 Inc. (NYSE: LRN), a leading provider of proprietary, technology-based curriculum, software and education services created for individualized learning for students primarily in kindergarten through 12th grade, today announced its results for the third fiscal quarter ended March 31, 2011.
Summary Financial Results
Review of Significant Business Activities
Ron Packard, Chief Executive Officer of K12 Inc., stated, “We are pleased with our performance this quarter across many initiatives. As a company, we achieved revenue growth of approximately 35 percent, thanks to 23 percent organic growth plus 12 percent from our new acquisitions and initiatives. Our virtual public school business remains strong with increased in-year enrollments. The environment for new states and cap expansion continues to be positive and we look forward to serving more children in more states in the Fall and are hopeful we will see favorable developments in coming months.”
“The integration of our recent acquisitions of KC Distance Learning (KCDL) and American Education Corporation (AEC) continues to progress. We are beginning to see the advantages of a broadened product portfolio in our institutional sales efforts. We expect to see continued benefits and cost savings going forward as we complete the integration of these businesses.”
“Furthermore, we continue to be optimistic about our ability to leverage our core competencies and strategic assets into other distribution channels. We continue to invest in our curriculum, systems and infrastructure to support this growth,” stated Mr. Packard. “Finally, on April 27, 2011, we completed a private placement sale of 4 million shares of restricted Common Stock to Technology Crossover Ventures (TCV). The aggregate investment of $125.8 million will support our expansion strategy. TCV brings both established expertise in the online education market and a strong track record of success investing in high growth companies.”
Financial results for the three months ended March 31, 2011 (Third Quarter Fiscal Year 2011)
Financial results for the nine months ended March 31, 2011
Cash, Capital Expenditures and Capital Leases
Fiscal Year 2011 Outlook
Based upon year-to-date results and Management’s outlook for the fourth quarter of the fiscal year 2011, the Company is reaffirming its prior financial guidance for fiscal year 2011 provided on February 9, 2011.
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 May 10, 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 third quarter 2011 financial results during a conference call scheduled for Tuesday, May 10, 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 and analysts should dial 866.356.3377 (domestic) or 617.597.5392 (international) at 8:20 a.m. (ET). The participant passcode is 37833441.
A replay of the call will be available starting on May 10, 2011, through May 17, 2011, at 888-286-8010 (domestic) or 617-801-6888 (international) passcode 71346965. 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:
Three months ending March 31, | Nine months ending March 31, | ||||||||||||||||||
2011 | 2010 | Change | Change % | 2011 | 2010 | Change | Change % | ||||||||||||
Total Average Enrollment | |||||||||||||||||||
K12 public schools | 81,666 | 67,560 | 14,105 | 20.9% | 81,560 | 67,755 | 13,804 | 20.4% | |||||||||||
K12 private schools | 2,459 | 1,172 | 1,288 | 109.9% | 2,337 | 1,065 | 1,273 | 119.5% | |||||||||||
K12 total | 84,125 | 68,732 | 15,393 | 22.4% | 83,897 | 68,820 | 15,077 | 21.9% | |||||||||||
Total acquired enrollment* | 16,905 | - | 16,905 | NM | 15,758 | - | 15,758 | NM | |||||||||||
Total Average Enrollment | 101,030 | 68,732 | 32,298 | 47.0% | 99,655 | 68,820 | 30,835 | 44.8% | |||||||||||
*Acquired enrollment includes KCDL programs of iQ Academies, Aventa and Keystone.
Summary of One-time Charges and Startup Losses
(In millions) |
Three months |
Nine months |
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One-time charges | $2.2 | $9.6 | ||||
Startup losses | 2.8 | 5.8 | ||||
Total EBITDA impact | 5.0 | 15.4 | ||||
Depreciation and amortization in startups | 0.3 | 1.0 | ||||
Total operating income impact | $5.3 | $16.4 | ||||
K12 INC. | ||||||||||||||||||
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||||
March 31, 2011 | March 31, 2011 | |||||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||||
(In thousands, except share and per share data) | ||||||||||||||||||
Revenues | $ | 130,293 | $ | 96,627 | $ | 394,167 | $ | 296,149 | ||||||||||
Cost and expenses | ||||||||||||||||||
Instructional costs and services | 77,727 | 56,479 | 229,004 | 166,161 | ||||||||||||||
Selling, administrative, and other operating expenses | 36,763 | 26,843 | 122,438 | 85,069 | ||||||||||||||
Product development expenses | 4,972 | 2,924 | 12,318 | 7,577 | ||||||||||||||
Total costs and expenses | 119,462 | 86,246 | 363,760 | 258,807 | ||||||||||||||
Income from operations | 10,831 | 10,381 | 30,407 | 37,342 | ||||||||||||||
Interest expense, net | (307 | ) | (361 | ) | (970 | ) | (1,042 | ) | ||||||||||
Income before income tax expense and noncontrolling interest | 10,524 | 10,020 | 29,437 | 36,300 | ||||||||||||||
Income tax expense | (5,260 | ) | (3,927 | ) | (14,310 | ) | (13,676 | ) | ||||||||||
Net income | 5,264 | 6,093 | 15,127 | 22,624 | ||||||||||||||
Add net loss attributable to noncontrolling interest | 335 | 36 | 509 | 226 | ||||||||||||||
Net income — K12 Inc | $ | 5,599 | $ | 6,129 | $ | 15,636 | $ | 22,850 | ||||||||||
Net income attributable to common stockholders per share: | ||||||||||||||||||
Basic | $ | 0.17 | $ | 0.20 | $ | 0.47 | $ | 0.77 | ||||||||||
Diluted | $ | 0.16 | $ | 0.20 | $ | 0.46 | $ | 0.76 | ||||||||||
Weighted average shares used in computing per share amounts: | ||||||||||||||||||
Basic | 30,958,807 | 29,951,327 | 30,620,330 | 29,658,076 | ||||||||||||||
Diluted | 31,758,313 | 30,352,974 | 31,327,544 | 30,023,341 | ||||||||||||||
Earnings Per Share Computation |
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Three Months Ended | Nine Months Ended | ||||||||||||||||
March 31, | March 31, | ||||||||||||||||
2011 | 2010 | 2011 | 2010 | ||||||||||||||
(In thousands, except share and per share data) | (In thousands, except share and per share data) | ||||||||||||||||
Net income - K12 Inc. | $ | 5,599 | $ | 6,129 | $ | 15,636 | $ | 22,850 | |||||||||
Amount allocated to participating Series A stockholders | 457 | — | 1,241 | — | |||||||||||||
Income available to common stockholders | $ | 5,142 | $ | 6,129 | $ | 14,395 | $ | 22,850 | |||||||||
Basic earnings per share computation: | |||||||||||||||||
Weighted average common shares — basic | 30,958,807 | 29,951,327 | 30,620,330 | 29,658,076 | |||||||||||||
Basic net income per share | $ | 0.17 | $ | 0.20 | $ | 0.47 | $ | 0.77 | |||||||||
Diluted earnings per share computation: | |||||||||||||||||
Weighted average common shares — diluted | 31,758,313 | 30,352,974 | 31,327,544 | 30,023,341 | |||||||||||||
Diluted net income per share | $ | 0.16 | $ | 0.20 | $ | 0.46 | $ | 0.76 | |||||||||
K12 INC. |
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UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS |
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March 31, |
June 30, |
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2011 |
2010 |
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(In thousands, | ||||||||||
except share and per | ||||||||||
share data) | ||||||||||
ASSETS | ||||||||||
Current assets | ||||||||||
Cash and cash equivalents | $ | 40,080 | $ | 81,751 | ||||||
Restricted cash | 1,500 | 3,343 | ||||||||
Accounts receivable, net of allowance of $2,839 and $1,363 at March 31, 2011 and June 30, 2010, respectively | 134,048 | 71,184 | ||||||||
Inventories, net | 19,028 | 26,193 | ||||||||
Current portion of deferred tax asset | 4,768 | 4,672 | ||||||||
Prepaid expenses | 10,246 | 8,849 | ||||||||
Other current assets | 9,280 | 7,286 | ||||||||
Total current assets | 218,950 | 203,278 | ||||||||
Property and equipment, net | 44,377 | 24,260 | ||||||||
Capitalized software development costs, net | 24,342 | 16,453 | ||||||||
Capitalized curriculum development costs, net | 52,643 | 39,860 | ||||||||
Deferred tax asset, net of current portion | — | 5,912 | ||||||||
Intangible assets | 39,148 | 14,081 | ||||||||
Goodwill | 53,580 | 1,825 | ||||||||
Investment in Web International | 10,000 | — | ||||||||
Deposits and other assets | 4,625 | 2,213 | ||||||||
Total assets | $ | 447,665 | $ | 307,882 | ||||||
LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND EQUITY | ||||||||||
Current liabilities | ||||||||||
Accounts payable | $ | 13,773 | $ | 12,691 | ||||||
Accrued liabilities | 12,468 | 8,840 | ||||||||
Accrued compensation and benefits | 8,627 | 10,563 | ||||||||
Deferred revenue | 28,315 | 9,593 | ||||||||
Current portion of capital lease obligations | 13,371 | 10,996 | ||||||||
Current portion of notes payable | 654 | 1,251 | ||||||||
Total current liabilities | 77,208 | 53,934 | ||||||||
Deferred rent, net of current portion | 3,886 | 1,782 | ||||||||
Capital lease obligations, net of current portion | 11,015 | 7,710 | ||||||||
Notes payable, net of current portion | — | 655 | ||||||||
Deferred tax liability | 10,899 | — | ||||||||
Other long term liabilities | 3,323 | 435 | ||||||||
Total liabilities | 106,331 | 64,516 | ||||||||
Commitments and contingencies | ||||||||||
Redeemable noncontrolling interest | 19,040 | 17,374 | ||||||||
Equity: | ||||||||||
K12 Inc. stockholders’ equity | ||||||||||
Common stock, par value $0.0001; 100,000,000 shares authorized; 31,556,283 and 30,441,412 shares issued and outstanding at March 31, 2011 and June 30, 2010, respectively | 3 | 3 | ||||||||
Additional paid-in capital | 378,799 | 361,344 | ||||||||
Series A Special Stock, par value $0.0001; 2,750,000 and 0 shares issued and outstanding at March 31, 2011 and June 30, 2010, respectively | 63,112 | — | ||||||||
Accumulated other comprehensive income | 176 | — | ||||||||
Accumulated deficit | (123,860 | ) | (139,496 | ) | ||||||
Total K12 Inc. stockholders’ equity | 318,230 | 221,851 | ||||||||
Noncontrolling interest | 4,064 | 4,141 | ||||||||
Total equity | 322,294 | 225,992 | ||||||||
Total liabilities, redeemable noncontrolling interest and equity | $ | 447,665 | $ | 307,882 | ||||||
K12 INC. | ||||||||||
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||||
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Nine Months Ended |
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2011 | 2010 | |||||||||
(In thousands) | ||||||||||
Cash flows from operating activities | ||||||||||
Net income | $ | 15,127 | $ | 22,624 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||
Depreciation and amortization expense | 30,463 | 18,365 | ||||||||
Stock based compensation expense | 7,453 | 4,547 | ||||||||
Excess tax benefit from stock-based compensation | (5,443 | ) | (4,204 | ) | ||||||
Deferred income taxes | 13,329 | 13,741 | ||||||||
Provision for doubtful accounts | 569 | 353 | ||||||||
Provision for inventory obsolescence | 729 | 558 | ||||||||
Provision for (reduction of) student computer shrinkage and obsolescence | 182 | (217 | ) | |||||||
Changes in assets and liabilities: | ||||||||||
Restricted cash | 1,712 | — | ||||||||
Accounts receivable | (52,728 | ) | (41,234 | ) | ||||||
Inventories | 7,235 | 8,673 | ||||||||
Prepaid expenses | 545 | (826 | ) | |||||||
Other current assets | (1,994 | ) | (2,914 | ) | ||||||
Deposits and other assets | (105 | ) | 262 | |||||||
Accounts payable | (4,150 | ) | 1,741 | |||||||
Accrued liabilities | 1,516 | (1,419 | ) | |||||||
Accrued compensation and benefits | (4,377 | ) | 1,651 | |||||||
Deferred revenue | 14,478 | 11,813 | ||||||||
Deferred rent | 2,483 | 544 | ||||||||
Net cash provided by operating activities | 27,024 | 34,058 | ||||||||
Cash flows from investing activities | ||||||||||
Purchase of property and equipment | (13,400 | ) | (898 | ) | ||||||
Capitalized software development costs | (6,895 | ) | (6,589 | ) | ||||||
Capitalized curriculum development costs | (11,728 | ) | (9,305 | ) | ||||||
Purchase of AEC, net of cash acquired of $3,841 | (24,544 | ) | — | |||||||
Cash advanced for AEC performance escrow | (6,825 | ) | — | |||||||
Cash returned from AEC performance escrow | 6,825 | — | ||||||||
Cash paid for investment in Web | (10,000 | ) | — | |||||||
Cash paid for other investment | (2,040 | ) | (842 | ) | ||||||
Net cash used in investing activities | (68,607 | ) | (17,634 | ) | ||||||
Cash flows from financing activities | ||||||||||
Repayments on capital lease obligations | (11,113 | ) | (9,575 | ) | ||||||
Repayments on notes payable | (1,251 | ) | (1,011 | ) | ||||||
Borrowings from line of credit | 15,000 | — | ||||||||
Repayments under line of credit | (15,000 | ) | — | |||||||
Proceeds from exercise of stock options | 8,252 | 6,938 | ||||||||
Proceeds from exercise of stock warrants | — | 50 | ||||||||
Excess tax benefit from stock-based compensation | 5,443 | 4,204 | ||||||||
Repurchase of restricted stock for income tax withholding | (1,595 | ) | — | |||||||
Net cash (used in) provided by financing activities | (264 | ) | 606 | |||||||
Effect of foreign exchange rate changes on cash and cash equivalents | 176 | — | ||||||||
Net change in cash and cash equivalents | (41,671 | ) | 17,030 | |||||||
Cash and cash equivalents, beginning of period | 81,751 | 49,461 | ||||||||
Cash and cash equivalents, end of period | $ | 40,080 | $ | 66,491 | ||||||
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:
Three Months Ended | Nine Months Ended | |||||||||
March 31, | March 31, | |||||||||
(In thousands) | 2011 | 2010 | 2011 | 2010 | ||||||
Net Income - K12 Inc. | $5,599 | $6,129 | $15,636 | $22,850 | ||||||
Interest expense, net | 307 | 361 | 970 | 1,042 | ||||||
Income tax expense, net | 5,260 | 3,927 | 14,310 | 13,676 | ||||||
Noncontrolling interest | (335) | (36) | (509) | (226) | ||||||
Depreciation and amortization | 10,950 | 6,052 | 30,463 | 18,365 | ||||||
EBITDA | $21,781 | $16,433 | $60,870 | $55,707 | ||||||
About K12 Inc.
K12 Inc. (NYSE: LRN), a technology-based education company, is the largest provider of online education programs primarily for students in kindergarten through high school in the U.S. These programs deliver individualized education to students through public and private online schools, traditional classrooms, blended school programs, and directly to families through direct purchase. 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 virtual schools supported by K12 have been accepted to hundreds of higher education institutions including many of the nation’s top-ranked colleges and universities.
K12 also distributes its extensive course catalog directly to school districts, as well as the course catalogs of Aventa LearningTM, acquired in July 2010, and American Education Corporation, a leading provider of instructional and assessment software for kindergarten through adult learners, which was acquired in December 2010.
K12 also owns, operates or provides services to several private schools: the K12 International AcademyTM, is an accredited, diploma-granting online private school; the KeystoneTM School, an accredited school with more than 35 years of distance and online learning success; and the George Washington University Online High School, an online school recently formed with the George Washington University.
K12’s language initiatives are executed through strategic alliances. K12 has partnered with Middlebury College in a new venture called Middlebury Interactive Languages to create and distribute innovative online language courses for pre-college students. K12 has a strategic investment in Web International English, a leader in English language training for students in China.
K12’s educational products are built on a strong research foundation by teams of highly credentialed and experienced academic and functional experts. Together, these teams have created over 60,000 hours of content across 480 course titles, and their specialized expertise is calibrated closely to the wide range of learning needs and environments where K12’s products are used. By leveraging technology appropriately, and using all available instructional modalities (from online courseware to offline print, including manipulatives and interactive media), K12 provides engaging instructional experiences where students can learn at their own pace whether in institutionally structured or individually prompted learning environments.
K12 also owns and distributes curriculum and services to post-secondary institutions through Capital Education and through a joint venture with Blackboard.
K12 is accredited through AdvancED, the world’s largest education community. More information on K12 can be found at: www.K12.com.
CONTACT:
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 Affairs
jkwitowski@k12.com